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XM Satellite Radio (XMSR)
XM and Sirius Want to Merge, Will the FCC Allow it?
Reports of a merger deal between XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. sent shares of both companies upwards during trading Tuesday morning. Shares of XM at one point were up over 12% while shares of Sirius were up more than 8%, despite the fact that there's a fair likelihood that regulators won't actually approve the deal. Just last month, the chairman of the FCC essentially said that such a deal wouldn't be approved. So what's changed since then, and why are the companies trying to push forward with the deal?
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Under the proposed deal, Gary Parsons, XM's chairman, would become the chairman of the combined company, while Mel Karmazin, the chief executive of Sirius, would become the chief executive of the combined company. Speaking about the deal, Karmazin said, "I would not have gone to our board [to promote this transaction] ... if we didn't think there was greater than a 50-50 chance of approval." Parsons also commented that due to competition from other sources such as internet radio and iPods, that it may be possible to convince regulators to approve the deal.
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An important point though is how the consumers will be affected. The deal brings up memories of the failed merger between EchoStar and GM Hughes Electronics, parent company of DirecTV. In a 2002 ruling, the FCC pointed out how the deal would reduce the available providers in many areas from 3 to 2, and in rural areas from 2 to 1, creating an effective monopoly. There is some hope that the situation might be different for satellite radio though, particularly since both companies have been struggling. It's possible that in the short run, consolidation could help them reduce costs for infrastructure and acquiring customers, and pass the savings onto consumers. Also, the satellite radio companies tend to offer competing programs instead of cable and dish television providers which often offer some of the same channels. While consumers might have had to pick between one or the other in terms of the satellite radio offerings, a merger would solve that problem.
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Despite the optimism on the part of the leadership of the two companies, many analysts still seem to be skeptical of the prospects of such a deal passing, as such an occurrence would require the FCC to amend their anti-merger rules. In a statement after the market close on Monday, Kevin Martin, chairman of the FCC, said "The hurdle here, however, would be high as the commission originally prohibited one company from holding the only two satellite radio licenses." David Kestenbaum, an analyst at Morgan Joseph & Co, said "While we believe the FCC could consider amending the anti-merger provision, we believe actual approval is unlikely." Even the analysts who believe the deal will pass admit it will be quite a struggle. Thomas Watts, who is an analyst with Cowen & Co., wrote, "Terrestrial radio will fight approval tooth and nail." While the market's reaction to the news has obviously been positive, there's still quite a challenging road to travel before the eventual benefits (if anything actually happens) of the deal are seen.
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Profile |
The Company's principal activity is to design and develop the XM Radio System, which was formed for the purpose of operating a digital audio radio service (DARS). The Company provides audio entertainment and information programming for reception by vehicle, home and portable radios through its high-power satellites Rock and Roll. These satellites offer 100 channels which cover music, news, talk, sports and children's programs with clear sound and coast-to-coast coverage. XM Radios are available under the brand names Sony, Pioneer and Alpine. The Company also provides music formats and delivers a wide range of ethnic and informational programming. The Company owns two FCC licenses to provide a satellite digital radio service in the United States. Radio services are transmitted through the commercial satellites.
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