More From The Sirius/XM Satellite Radio Merger Rumor Mill

The Street continues to show enthusiasm for the possibility of a merger between satellite radio rivals XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI). In the latest report on the idea, analyst David Bank of RBC Capital Markets wrote Friday morning that a merger of the two companies “appears both desirable and feasible.”

“Given anemic retail channel growth, we believe managements at both companies now recognize longer-term operating leverage from a potential combination is key to generating long-term shareholder value,” he wrote today. “We also believe the current regulatory framework could allow for a combination, through not without major resistance.”

Bank says the net present value of the potential synergies could be $5 billion to $6 billion. He notes that some of the most powerful synergies wouldn’t materialize right away; they’d have to let long-term contracts expire.

“While back office, retail incentives and advertising savings are possible near-term, only advertising synergies will likely drive savings by the same order of magnitude as OEM and content savings. Also, given 2-3 years OEM plannng cycle, XM/SIRI would probably need to maintain separate operating platforms for 24 months post-deal.”

Bank thinks that since they have more subscribers, XM would need to be the acquirer. He notes that XM has 7.6 million subs versus Sirius’ 6 million. (The problem, of course, is that XM has a smaller market cap than Sirius.)

As for whether the deal would win regulatory approval, Bank contends it would depend on how the market is defined: it’s not just about a duopoly, but rather a competitive environment with music over cell phones, iPods, WiMax and other technologies.

Finally, Bank says there is some urgency to get something done soon.

“We believe a Democratic helmed FCC (if a Democrat should be elected President) or even a less reception Republican helmed FCC (expected potentially under McCain administration) could offer much greater resistance than the current regulatory framework.”

Concludes Bank:

“XM and Sirius need to act before risking the shift to a less favorable regulatory environment.”

Thomas Eagan, an analyst at Oppenheimer who has buy ratings on both stocks, cautions that there could be a near-term pullback as investor excitement over the prospects for a merger ebbs.

“Regarding synergies, at first glance, we are somewhat suspect of significant near-term savings: each company’s satellite infrastructure would have to stay in place for several years; each company’s exclusive talent contracts (Howard Stern, MLB, Oprah, NFL) would likely remain for the balance of their contracts (for the next 5-8 years); and redesign of OEM install would likely take two years.”

At Friday's close, XM was up 74 cents to $17.12, while Sirius was ahead 20 cents to $4.10.

XM/SIRI 1-yr comparison chart