Explain the acquisition (Exhibit 2). How subjective are the intangible asset valuations? Why did Sirius XM Radio immediately write off $4.77 billion of the acquired goodwill (Exhibit 6)? Did the write-off indicate Sirius overpaid for XM radio? Was the merger a wise for Sirius? For XM?
Assume there were no costs associated with Mr. Stern’s contract other than the $500 million cash payment and $200 of common stock, paid as follows: $300 million January 1, 2006; $100 million January 1 of 2007, 2008, 2009, and 2010. (For this question, assume there is no difference between the cash and common stock.)
Assume Sirius Radio’s cost of capital was 15%. Should Sirius Radio have entered into the contract with Mr. Stern? What assumptions did you make? Include your assumptions about revenue per subscriber per month (Exhibit 1). Explain subscriber acquisition costs (Exhibits 3 and 7) and explain why you did or did not include them in your evaluation.
Should Sirius XM Radio re-sign Mr. Stern when his contract expires on December 31, 2010? If so, how much should it pay him? Explain.
Would you have offered Sirius XM Radio the same financing terms on February 17, 2009, as those Liberty Media offered? Explain.
What do the Liberty Media investment terms imply for Sirius XM Radio’s value? Explain.
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