Liberty Media's (LMCA) application for permission to go to de jure control of Sirius XM (NASDAQ:SIRI) is now in the hands of the Federal Communications Commission ("FCC"). Liberty's application was accepted and posted for comments on the FCC web site, with Petitions to Deny due on November 1st, Oppositions due on November 13th and final Replies due on November 20th. There was one Petition to Deny filed by Alexander Bergmann on October 26th, Liberty's response was filed on November 13th and Bergmann responded on November 20th.
Bergmann's response can best be described as a list of 20 overlapping complaints about the price of Sirius XM shares and the loan made by Liberty to Sirius XM nearly four years ago. That loan enabled Liberty to buy control of 40% of Sirius XM for $12,500. Neither the price of the shares or the loan are factors that should be considered by the FCC, and there is little that addresses whether or not Liberty would be a responsible licensee. And, two of Bergmann's issues suggest that they either pre-date Liberty's loan or won't matter if Liberty is permitted to take control. Number 17 suggests that management issues of concern to Bergmann pre-dated Liberty's involvement with Sirius XM:
17. Public interest in SiriusXM can be effected into the future, due to two companies "squander for control", while LTE, Smartphone, Infomatics and Telematics went in the Cars from 2006 to 2012 and continue.
Number 19 suggests that it doesn't matter whether or not Liberty is permitted to take control:
19. If FCC agree to give control the harm is done, if deny the harm is done, no matter now. The shift from satellite radio to internet radio is huge and irreversible during 4 years of "marriage" to Liberty and most of them have content.
Regardless, the comment period is now over. The FCC has received no other objections and it is difficult to take those of Bergmann very seriously. His original premise was not whether or not Liberty would be a responsible licensee or serve the public good.
Bergmann blurs the responsibilities of the FCC, the SEC and the Department of Justice, focusing almost entirely on investors rather than use of the spectrum and subscribers. Even if the FCC approves the application, these other entities would have the opportunity to determine if the takeover complies with SEC, FTC or DOJ rules and regulations.
Liberty has been through this type of process before with its DIRECTV (NYSE:DTV) transaction. As part of the DIRECTV approval process, Liberty was required to divest itself of certain assets and make concessions. As part of the FCC granting permission to Liberty to go to de jure control of Sirius XM, it would not be a surprise to see the FCC require Liberty to adhere to the same conditions required by Sirius and XM to get their merger approved four years ago.
Last May I wrote the following in an article about whether or not the FCC should block a takeover by Liberty.
John Malone and Liberty were eventually approved by the FCC [to take control of DIRECTV] and there is little reason to expect that they will not be approved should they take a majority position in SiriusXM. Ownership of SiriusXM would create very few, if any, conflicts of the type encountered with DIRECTV.
While SiriusXM is a monopoly, the FCC has more recently ruled (when it allowed the price freeze to expire) that it has limited pricing power due to the availability of viable alternatives. Having Liberty move from 40% to 46.2% to majority ownership of SiriusXM is not going to alter that pricing power. Similar arguments can be made about vertical integration. SiriusXM already has some unique content, and changing ownership won't make that content or distribution method more, or less, desirable.
The FCC will almost certainly maintain any previously agreed to restrictions imposed by the Sirius and XM merger, but it would seem unlikely that any significant new restrictions would be imposed before permitting a Liberty takeover.
There have been some changes since I wrote the article in May. Liberty has increased its ownership position to more than 49.5% and Sirius XM CEO Mel Karmazin has announced he would be leaving the company. Also, Sirius XM has added a million subscribers and paid off nearly $1 billion of high interest debt and expanded its footprint in the used car segment. These factors should not impact the FCC decision process, and neither should Bergmann's complaints.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have $3 January 2013 covered calls against most of my SIRI position, as well as some $2 and $2.50 January 2013 and $2.50 December covered calls. I may initiate (or close) a buy stock/sell option position in SIRI at any time. Also, in addition to long-term holdings, I have recently begun day trading 10,000 share blocks of SIRI and may continue to do so. I have no position in LMCA or DTV.