Good news all around
Two very key news announcements were made today. The Bear Stearns buyout by JP Morgan has a new pricetag of $10 per share and the Sirus XM merger will be completed.
JP Morgan’s first bid of $2 per share was deemed too low by the board which believes that the book value of the assets is much higher than $2 per share. Rumors were all over the blogosphere about the merger and the low bid price of $2 per share. The new price of $10 was much appreciated by investors and pushed BSCs stock to close at $11.25 today. Investors are still looking for a revised offer of greater than $10, but it seems like this will appease the parties involved in the transaction.
While Bear Stearns books still look like a complete mess, the inherent value behind the company should be much greater than $10 per share. Some estimates were going as high as $38. Bear Stearns would not be able to operate at a profit, or anywhere near breakeven if the company were left on its own. After JP Morgan completes the deal, the assets will be shifted to JP Morgan’s books and guaranteed by a loan from the Federal Reserve. All of Bear Stearns employees are likely to be out of a job and JP Morgan looks to inherit billions in mortgage backed securities which may or may not be profitable.
As for the Sirius and XM merger, it now looks like it will be complete. Regulators were worried that a merger of the two would bring a monopoly in the satellite radio business. Both companies argued that satellite radio still has to compete with free broadcast radio and cannot compete with eachother while competing with standard radio. XM and Sirius both offer completely ad-free radio which is supported by monthly fees. Land based radio operations have launched an extensive campaign to block the merger which further proves that the two radio types are in direct competition. Now that the deal is approved, there will be two offerings. For $6.99 customers will be able to chose one of the two satellite radios or for $16.99 per month, they will be able to incorporate both satellite packages into one plan.
Both companies have been losing money since first established, hopefully now that they merge and customers won’t have to pick one or the other they’ll be able to move towards profitability. Lets see how this plays out…