Since last week's second request compliance, there has been near mass hysteria amongst the press, analysts, and bloggers alike with increased optimism for the XM Satellite Radio (XMSR) - SIRIUS Satellite Radio (NASDAQ:SIRI) deal's chances of success. Given the overall publicity surrounding this proposed merger from day one, the current enthusiasm is not at all surprising. This is easily the most contentious merger transaction in recent history and the ups and downs will continue well into near future.
The compliance momentum has been bolstered by the entrance of the first politician to publicly support the merger: Representative Jim Boucher [VA] last week wrote directly to FCC Commissioner Martin expressing his belief that satellite radio is indeed part of a larger broadcasting market and that the a la carte offering will ultimately benefit consumer. Oddly, Boucher's letter is not posted to his official website, nor has it yet found its way into the formal FCC docket.
The companies have also assisted the pro-merger sentiment by releasing a "national survey" claiming that more than 70% of respondents favor the a la carte programming concept, as well as a 2-to-1 favorable response for the merger in general. This survey has duly been discredited by the National Association of Broadcasters as (ironically) overly narrow in its scope, describing it as "loaded" in favor of the merger. This is, of course, standard hyperbole by both sides.
Also adding to the positive momentum were comments mad by Commissioner Martin earlier today in which he stated the FCC continues to target a fourth quarter decision in its review. He alluded to the desire of the Commission to have a decision out within the current review timeclock, which is currently at day 94, but naturally did not offer any assurances that this could be accomplished. However, just the utterance of "fourth quarter" from Martin seems to have ignited even more optimism for approval, despite the fact that the FCC time frame has not been altered at all since the review began.
What is perhaps most intriguing, and somewhat entertaining, about the recent events is the broad market impression that the public relations efforts on both sides of the merger, combined with select analytical reports (again, on either side) actually have some material impact on the staffs at the DOJ and FCC. That these regulators have displayed almost no "tail wagging the dog" influence -- at least in the public sphere -- in the past seems forgotten. It may be assumed that both regulators are fully aware of the constant public bickering and alternating analyst opinions. It should also be assumed that the respective staffs have little to no interest in what is transpiring outside the ongoing reviews. In other words, the momentum exists in perception only, until one or both regulators offers some indication of direction in this case. As of yet, neither regulator has offered anything resembling substantial guidance.
Whether the HSR compliance documentation will convince the DOJ to look at the SDARS market broadly remains to be seen. Surely, such a complex and contested decision will not be made quickly, which is why the companies declined to enforce a second waiting period under HSR. Thus, the concept of a quick DOJ decision, as suggested in some quarters, is also a perception, and one which is not based on DOJ precedent.
While it is fashionable to suggest that merger approval "odds" have increased, the fact of the matter is that the odds themselves have not changed in the slightest where the FCC and DOJ reviews are concerned. Market definition will determine if the deal is approved or rejected, and the markets have not changed one iota since February 19th.
This publication therefore maintains that the chances of the deal being successful completed at 33%, with the primary factor in favor being the current regulatory environment.
Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.