XM Satellite Radio Holdings (XMSR)

If the merger of Sirius and XM passes, each share of XM will receive 4.6 shares of Sirius. Currently XM is trading at a discount to the merger share ratio. Stifel analyst Kit Spring issued a note Tuesday in which he highlighted the arbitrage spread between Sirius (SIRI) and XM (XMSR) as being “abnormally high”. The arbitrage spread is represented by the delta between the price of Sirius and XM in relation to the 4.6 shares of Sirius that will be received for each share of XM upon a merger approval. With Sirius closing at $2.00 Tuesday, the implied price for XM is $9.20. XM closed at $7.57. Thus, if the merger were approved Tuesday, a share of XM would bring a premium of $1.63 over current prices.

XMSR reported broadly in-line results marked by better than expected subscriber net additions and reported ARPU of 460K and $10.14 respectively. Pre-marketing EBITDA margins were 31% after adjusting one-time items versus our estimate of 27%. Modest reduction to OEM forecast: We have decreased our OEM gross additions by 110K and net additions by roughly 40K, implying nearly 60% and 10% YoY growth, respectively. XM stated that it currently penetrates roughly 40% of its OEM partners production and expects this to grow to 70% by MY10E vehicles.