More analysts are starting to speculate about whether Sirius (SIRI) and XM (XMSR) will merge. It led to modest upticks in the stocks of both companies and sparked some early lottery ticket buying in the options market.
There were two research reports out on Friday which stoked the fantasy buying in the options world.
Lehman says a merger between the two satellite radio providers increases if growth continues to disappoint. My spot analysis: Growth will continue to disappoint (that's why I'm getting the big bucks to do this). LEHM gave no time table for a potential deal. It did note that if all synergies went to XMSR, shares would be worth $45 while SIRI shares would be worth $9.50 if synergies were to go to Sirius. LEHM rates both stocks "Overweight".
UBSW said the likelihood of the two companies formally addressing a possible combination are at the highest level to date. UBS says both companies would benefit through operating and and capital cost synergies. UBSW rates both a neutral and lifted XMSR's target to $17 from $13.50.
SIRI rose 11-cents today to $3.90; XMSR up 74-cents to $15.89.
Options activity was brisk in the January 20 XMSR calls where more than 5,000 traded Friday. Nearly 5,000 January 5 SIRI calls also traded on bets that SIRI shares will vault to $5 before the 3rd Friday in January.
Right now those Jan5 SIRI calls are being bought on an offer at 5-cents, but with no-bid, meaning they cannot be sold; they are worthless at the present time! So early bets are being made on merger hopes, but given the huge open interest on these options, especially the Sirius options (Jan5 open interest is a whopping 170,000+ contracts), Friday's betting on way out of the money options was on the light side compared to what's already been bought in those options - which were once upon a time deep in the money LEAPS when things where much better. As for yesterday, what is it with people who initiate bets where they lose all of their money right away on the hope that a stock will magically rally for them by about 30% within a month?!? Unless Karamzin and Panero have already conducted business under the mistletoe, a deal like this will take some time to hammer out, especially the strategy to get by Justice Department problems, not to mention the CEO egos, but in the end it looks like the need to survive will ultimately dictate the need to combine.
So the Jan5 SIRI call lottery ticket bets are being made, but going to the casino for the free weekend might be a whole lot better, as the sleazy Tanya Roberts radio commercial says: 'You can get out of Dodge, be a high roller right on the strip, get tickets to a hot show... Las Vegas is calling, baby'!