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Merger Magic Eludes Sirius

Shares fall to a 52-week low on a Bank of America downgrade.

Sirius (SIRI) - Get Free Report and XM (XMSR) shares continue to slide as merger magic fails to dazzle investors.

Both stocks dropped again Monday after Bank of America analyst Jon Jacoby cut the projected value of the two satellite broadcasters. Sirius and XM shares are now down 25% since the announcement that the satellite duo planned to join forces. Sirius hit a 52-week low Monday at $2.90.

One of the key reasons for the lowered estimates, Jacoby writes in a research note, is that fewer new-car buyers will elect to pay for the service. Conversions from free trial service to paid customers will probably fall to as low as 40%, down from the 50% previously assumed, Jacoby writes.

The lower conversion rate probably accounts for half a million fewer subscribers than originally targeted for 2010, Jacoby writes.

But the current subscriber targets should be easy to hit, according to the analyst. "We believe that XM should beat our net add estimate of 242,000," Jacoby writes. "We expect Sirius to meet or beat our net add estimate of 461,000." The consensus is 334,000 for XM and 497,000 for Sirius.

Sirius and XM are seeking approval for a merger that would help slow the cash burn at both money-losing shops. But Jacoby says the prospects are growing dimmer as the deal faces scrutiny from Justice Department antitrust regulators and consumer protection watchdogs at the Federal Communications Commission.

Jacoby, who has a neutral rating on both companies, puts the chance of federal approval "between 25% and 40%."

Sirius shares fell 7 cents to $2.91 and XM was down 8 cents to $11.41 in late-morning trading Monday.