Sirius and XM shares drop as merger nears

Wall Street likely reacting to financing issues

Sirius and XM, finally set to merge, watched their respective shares plummet Monday, probably Wall Street's reaction to the hoops through which they are jumping to get their finances in order.

Sirius said Monday that it was offering $375 million in stock tied to a $550 million debt placement from XM, designed to refinance XM's big debt load.

Although the Sirius maneuver isn't expected to dilute shareholder equity, the stock behaved as though it would. Sirius shares lost 16.4% to $1.88 and XM was off 11.9% to $8.17. Sirius was the biggest loser on The Hollywood Reporter Showbiz 50 stock index.

The drop in the share prices Monday come on the first day of trading since the FCC's official pronouncement that it would allow Sirius to merge with XM, which should have been a bullish event. Instead, both companies trade near their 52-week lows.

Also on Monday, Sirius disclosed preliminary second-quarter financial data that was basically in line with what analysts were expecting.

The company added 279,820 net subscribers to total 8.9 million. When Sirius combines with XM, the two will boast about 18.6 million subscribers.

Sirius said it expects to report that revenue for the second quarter rose 25% to $283 million and that its loss will have shrunk 70% to $24 million.

Citigroup analyst Tony Wible called the preannouncement "solid" and reiterated his $6.50 target price on Sirius, suggesting his expectation of a hefty 219% gain in shares in the next year or so.