Sirius-XM merger parsed in light of Kerry's letter to FCC; Jubilant acquires Draxis

By Paul A. Harris

St. Louis, April 4 - The merger between Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. brings up "serious concerns" about competition in the post-merger landscape, senator John Kerry, D.-Mass., told Federal Communications Commission chairman Kevin Martin in an open letter published on Thursday - but an equities analyst who covers both companies commented to Prospect News on Friday that the competitive radio landscape is an evolving one.

The broader the view that you take, the more competitive it looks.

"It certainly isn't the same now as it was a more than a dozen years ago when Sirius and XM got their licenses," the analyst remarked.

"If you accept, as the DoJ seemed to, that it's a landscape of audio options - not just satellite radio as a narrowly defined submarket - then certainly there still should be a competitive landscape."

The source added that some emerging technologies that will figure into the competition equation, such as Wimax-driven audio options, are just coming off the workbench.

Others are farther out on the horizon.

No shortcut to profitability

Sirius (Nasdaq: SIRI) shares ended the Friday session unchanged at $2.79. XM shares, meanwhile, dropped by 1.71%, or $0.21, to close at $12.04.

The analyst said that when the Department of Justice approved the merger in late March Sirius shares got as high as $3.20, and then came back down.

The source, recounting that both companies have yet to turn a profit and are not expected to do so in the near future, said that the combined entity might reach profitability more quickly than would otherwise be the case.

However, the analyst added, the numbers don't necessarily add up to a combined entity that would reach profitability more quickly than Sirius alone would otherwise.

"It is challenging at the moment to get a handle on what the major cost savings will be," the analyst said, adding that the combined entity won't realize much savings with respect to satellite systems.

"One of the objectives, both from the standpoint of the companies and from the standpoint of the regulators, is that you don't want the special receiving sets that people have been purchasing to become obsolete.

"The only way to achieve that, with two incompatible systems, is to refrain from converting into a single satellite structure right away.

"They will cut back on some programming, which will result in some cost savings. And then effectively simulcast over both infrastructures."

The analyst said that the combined entity should realize some savings in terms of back office expenses.

Investors are now focused on the pending FCC ruling on the merger, the analyst said.

"That's when the companies will learn what strings are attached," the source said.

Jubilant to acquire Draxis

Bhartigram, India-based pharmaceuticals company, Jubilant Organosys Ltd. and Mississauga, Ont.-based Draxis Health Inc. announced on Friday that a wholly-owned subsidiary of Jubilant will acquire all the outstanding common shares of Draxis at $6.00 per share in cash in a transaction valued at approximately $255 million.

The purchase price represents a 22.4% premium over Thursday's closing price of Draxis' shares on Nasdaq and a 41.2% premium over the March 13 closing price, the last trading day on Nasdaq prior to the request by securities regulators to explain increased trading in Draxis' common stock on March 14.

The Draxis board has approved the deal and will recommend it to its shareholders.

The proposed transaction is expected to close in the second quarter of 2008, shortly after receipt of shareholder and court approvals.

Draxis shares trading on the Toronto Stock Exchange (TSX: DAX.TO) jumped 20.24%, or C$1.00, to close at C$5.94.

Draxis shares trading on the Nasdaq (Nasdaq: DRAX) climbed 20.41%, or $1.00, to close at $5.90.

Jubilant shares trading on the National Stock Exchange of India (NSE: JUBILANT.NS) gained 1.01% on Friday, closing Rs. 3.40 higher at Rs. 339.35.

Myers merger terminated

Elsewhere in Friday's equities situations, the board of directors of Myers Industries, Inc. announced that GS Capital Partners does not intend to proceed with the proposed acquisition of the company.

As a result, Myers Holdings Corp. the parent and the company have agreed to terminate the merger agreement.

"Myers Industries continues to focus on its sound business growth plan and fundamentals directed at sustainable, profitable growth," the company stated in a Friday press release.

Trailing the announcement share of Akron, Ohio-based Myers Industries (NYSE: MYE) fell 7.57%, or $1.03, to close at $12.57.

Office Depot proxy fight

Office Depot, Inc. is facing a proxy contest after activist shareholder Woodbridge Equity Fund LLLP, a 1.1% stakeholder in the company, moved to elect two members of its choice to the board.

Woodbridge Equity Fund LLLP and Levitt Corp. highlighted what they described as Office Depot's "continued poor performance," and urged Office Depot shareholders to vote Mark Begelman and Martin E. Hanaka to the board.

"Shareholders know all too well the history of poor performance at Office Depot, having watched the value of their investments decline precipitously over the past two years - all under the watch of Steve Odland and the current board," said Alan B. Levan, the chairman and CEO of Levitt and president of Woodbridge, stated in the letter to shareholders.

"Our nominees will bring the skill set, experience and the drive necessary to turn around Office Depot's performance and finally deliver on the company's many promises."

Shares of Office Depot (NYSE: ODP) ended the Friday session 1.91% lower at $11.79, down $0.23.

Meanwhile the major U.S. stock indexes finished the Friday session mixed trailing news that the U.S. economy shed 80,000 jobs in March, the most in five years, while the job loss totals of the preceding two months were revised upward, and the unemployment rate climbed to 5.1%.

The Nasdaq was up 0.32%, or 7.68, to close at 2,370.98.

The S&P 500 gained 0.08%, or 1.09, to close at 1,370.40.

However the Dow closed 0.13% lower at 12,609.42, down 16.61.

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