ORBM.PK

With a relatively quiet week in the satellite industry, Orbimage’s agreement to purchase rival Space Imaging takes center stage.

Media outlets broke news of the transaction Sept. 15, with Orbimage confirming the deal Sept. 16 as this issue was going to press. Under the agreement, Orbimage Holdings LLC will pay $58.5 million, less amounts which will be paid by Space Imaging on its existing debt prior to closing, for the assets of Space Imaging.

Orbimage shareholders had an initial positive reaction to the news, with the price of the stock jumping $1.65 per share when the deal was first reported Sept. 15. However, as this issue was going to press, the euphoria wore off, with the stock trading at $12.50 per share, which is around the price the shares had been trading at for the past month. Shares closed at $12.25 Aug. 19, and not counting the Sept. 15 spike, the stock never traded higher than $12.50, suggesting traders may not view this acquisition as adding a significant amount of value to Orbimage.

XMSR

XM Satellite Radio signed a 10-year, $100 million deal to become the exclusive broadcaster of the National Hockey League beginning in the 2007-2008 season. Both XM and competitor Sirius Satellite Radio will broadcast NHL games the next two seasons.

At first glance, this deal raises a red flag, as $100 million seems a high price tag for the broadcast rights of what has to be considered, at least for the moment, a sport with an uncertain future. “Due to the plummet in NHL TV ratings throughout the last several years and the lockout, which resulted in the cancellation of the 2004-2005 season, the size of the NHL fan base is a bit uncertain,” Sean Butson, analyst with Legg Mason said in a Sept. 13 research report.

An NHL recovery may take a few seasons and some high profile good will, but the league lacks an obvious “feel good” story in the way Major League Baseball had Cal Ripken breaking Lou Gehrig’s consecutive game streak in 1995 to heal wounds created by a labor dispute that forced the cancellation of the playoffs and the World Series in 1994. This makes XM’s investment in the NHL on the surface a big gamble.

However, breaking the deal down a little further shows the gamble may not be as bad as the initial sticker shock suggests. Butson estimates that “XM only needs to bring in about 400,000 subs over the life of the deal (40,000 per year) to break even.”

Another potential aspect to this deal could have to do with Canadian-based content requirements the Canadian Radio-television Telecommunications Commission placed on Canadian Satellite Radio, which is the Canadian partner to XM. If XM is able to use its coverage of hockey as a way to meet some of the non-music Canadian content requirements, this contract, which averages just $10 million a year, could turn out to be a loss leader to help XM grow the Canadian satellite radio market.

The move did not seem to phase investors enough to move XM’s stock in either a positive or negative direction, mirroring most sports fans’ reaction to the NHL shutting down its 2004-2005 season. XM’s stock jumped 12 cents to $36.12 the day the NHL announcement was made and fell in the two days that followed before recovering some of the slight decline to close Sept. 15 at $35.61.