Status Report: SIRIUS/XM Satellite Radio

First of all, it must be stated that adjusting our assessment of the XM (XMSR) - SIRIUS Satellite Radio (SIRI) merger over the last several days has been an extremely difficult process. The temptation has been to maintain the status quo (i.e. a 1 in 3 chance of successful deal completion) and simply continue to assess developments as they occur. However, as the one-year mark rapidly approaches, it seems that revisiting the deal's actual "odds" is appropriate.

That being said, this publication is inclined to believe that the chances of DOJ and/or FCC approval is at this time lower than the 33% maintained by this publication for the last year. The precise reasons for the current assessment are varied and not in any way based on concrete information. Instead, they are an accumulation of events in this transaction and, to be quite blunt, this publication's established ability to foresee regulatory developments in complex situations such as this one. In other words, it is the perception of this publication that this deal's chances of success have diminished as the transaction reaches the one-year mark. The primary reasons for this are as follows:

• Both the DOJ and FCC remain essentially silent on progress, or lack thereof, in their respective reviews, which is typically an ominous sign at this late-stage of the processes. Whether it be internal divisions, concession negotiations, political intervention, etc., virtually no legitimate information has been leaked or otherwise offered to indicate where the reviews are headed at this time. This simply can not be viewed as a positive.
• For both regulators, this case is likely being considered as the last major merger situation in which the current leaders' legacies will be defined. The DOJ, despite its claims that "antitrust enforcement is alive", has clearly lost some of its prestige in recent years as an "enforcer" where mergers are concerned, and must be acutely aware of this concept. This merger definitely provides an opportunity to make a lasting impression both inside and outside the D.C. beltway, and it is clearly a case in which the DOJ can win if a legal battle ensues.
• Although the political enthusiasm on both sides of the merger argument appears to have abated, it must be assumed that there is plenty of behind-the-scenes activity among federal politicians -- the majority of which remain opposed to the merger. Regardless of motivations, the political opposition does exist and it would be absolutely imprudent to expect it to simply vanish as the DOJ and FCC reviews near their conclusions.
• Intervenor/Opposition activity with the FCC has continued at a very rapid pace and high volume over the last few week, with meetings occurring with FCC staff and Commissioners on a regular basis. Unlike the vast majority of other major FCC reviews, the organized opponents in this case have maintained a focused and motivated front in their efforts. Again, regardless the underlying motives, the opposition in this case is legitimate and backed by forces that simply can not be dismissed, financially and/or politically.

Naturally, there are other factors at work in both major reviews, but the above represent the key factors that will likely determine the outcome in the regulatory processes. It has been suggested since the outset of this deal that this transaction would be a long, arduous, and publicly disputed event. This very accurately describes the situation as it stands today. While it is, again, very difficult to handicap a deal with so many variable involved, the general, yet palpable, sense is that the DOJ will ultimately decide to challenge this proposed transaction on antitrust grounds, using narrow-market definitions as the basis for its decision.

If this does indeed occur, and the companies decide to contest the DOJ in the courts, there is very little chance they will succeed in this particular case. If odds must be assigned to this deal, this publication currently perceives the odds of a successful deal completion at 1 in 5.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.

Comments

[firboy4]

Great article! It is quite frustrating, not knowing what's going to happen. Hopefully the DOJ is keeping mum just because they are supposed to, rather than as a sign of an upcoming ruling against a merger. But, of course, that's just wishful thinking on the part of a SIRI shareholder.
Maybe Microsoft will create a satellite radio station! Then SIRI and XMSR could merge!

[Bob Wilson]

Another, more likely, explanation for the delay is a negotiation over how much spectrum, if any, the merged entity is willing to provide for "public service" of some sort. If either the DOJ or the FCC wanted to torpedo this deal, it could have done so last year.
Disclosure: I have a small, long position.

[User 140957]

The writer of this article is a coward for not leaving his name. Probably that pos Jacoby.

[Tie D]

Interesting. We are supposed to take equity advice from an anonymous source that claims to have no interest in any security of any kind. How are you saving for retirement? Rare stamps? Your mattress stuffed with dollar bills? Most analysts tout their credentials, and you attempt to remain anonymous. Care to show your work and tell us what probability model you used to come up with 1 in 5? Thought so.