Who ends up on top in XM-Sirius combo?

February 21, 2007

Good question. Reuters mergers and acquisitions reporter Michael Flaherty explains:

The companies are billing the deal as a “50-50″ merger of equals, with a combined enterprise value of approximately $13 billion that includes net debt of around $1.6 billion.

Some major media outlets called the deal around $11 billion, stripping out that debt.

Enterprise value (EV) is typically calculated as market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

But several media outlets–including Reuters–and some analysts refer to the deal as Sirius buying XM, for a few simple reasons. The stock getting swapped out of existence is XM’s, and the 22 percent premium paid is to XM shareholders. In addition, some M&A bankers and experts believe a key indication of who is on top in a deal is which company’s chief executive remains in place. In this case, it’s Mel Karmazin of Sirius.

From a straight takeover standpoint, the value of the deal was $4.6 billion on Monday with the market closed, based on the latest outstanding shares listed on each company’s regulatory filings.

Here’s how the math works:

We reach the $4.6 billion figure by multiplying XM’s latest publicly available share count of 268.5 million by the 4.6 exchange ratio (equals 1.24 billion Sirius shares) and then by the $3.70, which was Sirius’ price at Friday’s close. That increased on Tuesday to $4.9 billion as  shares in Sirius rose.

But which set of shareholders end up with majority control? Or is it the perfect 50-50 marriage the companies are claiming? Based on the latest filings Sirius shareholders with 1.41 billion shares have 53 percent of the shares of the combined company against about 47 percent for XM shareholders. (Remember, XM shareholders would have only 1.24 billion Sirius shares.)

This doesn’t take into account convertible securities. On that basis, analysts say XM’s share count could go up to around 340 million and the Sirius number to around 1.7 billion.

But that doesn’t change a lot as the ratios are still in Sirius shareholders’ favor with 1.7 billion shares, or 52 percent, versus 1.56 billion shares, or 48 percent, after the proposed deal.

Hang on. 

If the average Joe is confused here, the analysts do not appear to be in any better shape. One analyst note said the Sirius-XM share split under the new entity will be 54 percent and 46 percent respectively, while another said 52 percent and 48 percent.

XM and Sirius are sticking by their story and confirmed that the share count was accurate. We’re sticking by ours.

But perhaps we are being too detail-oriented. After all, calculations can go out the window when love’s involved.

(Photos: Reuters)
Updated second to last graph with companies confirmation on share count.

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