Stifel Outlines XM/Sirius Merger Issues

In a research report issued Thursday, Stifel analyst Blair Levin outlined the merger from various perspectives, but ultimately did not change any outlook regarding chances for approval. Merger proponents will pull out the positives, while merger detractors will highlight the negative aspects. In essence, the report issues a balanced look at what could already be transpiring with regards to the merger, and what possibilities exist going forward.

REPORT EXCERPTS

• The proposed merger of XM (XMSR) and Sirius (SIRI) is still pending at the Department of Justice Antitrust Division. The delay in reaching a decision does not, in our view, change the analysis of the likelihood that the Division is leaning one way or another.

• If the DOJ announces it will not move to block the deal, the next step will be for the companies to gain the approval of the Federal Communications Commission, which is reviewing license transfers needed to close the deal. In that case, we believe the companies will be able to win FCC clearance, but we expect the agency will seek and obtain a number of conditions on the merger in a process that could take a number of weeks.

• If the DOJ instead announces it will oppose the proposed merger of XM and Sirius, the situation is more complicated but we believe the bottom line is the deal is unlikely to obtain government approval.

• Sirius has said in the past the companies would challenge such a decision, but if they do, we believe their chances of success are limited. Although companies sometimes successfully challenge a DOJ or FTC decision to block a merger, as happened with Oracle (ORCL)-PeopleSoft and Whole Foods (WFMI)-Wild Oats (OATS), this is rare. We believe a successful challenge would be even more difficult because the companies also need to obtain clearance by the FCC.

• We believe that if the DOJ moves to block the merger, the FCC is most likely to follow suit and disapprove the merger. The FCC could even sit on the decision for some time, during which the companies would feel pressure to move on with their separate existences. It is also possible, however, that Chairman Martin could decide that the agency should postpone its consideration of the merger until after the court has ruled on the DOJ complaint.

Comments

[Isaac, Rotterdam, Holland]

Just think of the file material the DoJ requested and got: 6 million pages to study. I know it is important not to create a positive precedent for a merger which is alledgedly viewed as a monopoly.
Of course, there is this 10-year-old FCC limitation in that one company should not be able to control the entire sprectum. But that was 10 years ago. Moreover, it is a merger of equals, combining forces to obtain efficiency and benfits for the consumer, their astonishing 17 Million Voluntary Subscribers!

For years I had not studied anti-trust law and boy, what subject to read.
However, it comes down to recognizing market power and monopoly power -- both do not apply in this case.

In my view therefore a monopoly 100% not the case -- as the strongest merger-opponent is the NAB: why would they worry, if not fishing in the same, wide pond? Cross-elasticity is the word; it is not as if radiolisteners have starved from entertainment before the SDARS were there... on the contrary: the market landscape has become so wide every consumer has a free choice of radioconsumption. If as a consumer you desire uninterrupted, ad-free reception and CD-quality throughout the country, driving from coast-to-coast of course you buy one, or two or soon: just one supplier of this service. If you can't or do not want to pay: fine, stick to good old FM or AM or CD or even cassette.
Even if the happily merged companies nastily would up their charges to say $29.99/month , they would shoot in their feet as consumers still have a choice and would churn rapidly. This is not about about a milk-cartel!
So DoJ, so FCC: this is 2008 go ahead, give the merger a greenlight and get back to bigger matters.

2008 Jan 16 04:25 PM