The Bear Stearns Upgrade of Sirius deserves a closer look at various aspects of the report. Readers invested in either Sirius or XM will find the information not only pertinent but valuable as they consider these equities and the possibilities of a merger.
For those that have followed the equity for some time, Robert Peck of Bear Stearns should be well known. He has followed this sector for quite some time, and in my opinion is one of the analysts that grasp this sector very well.
Perhaps one of the most important aspects of this note is the Peck used conservative numbers and estimates throughout the report. This is a primary item in that the goals established by Peck should attainable, and thus an entry at these levels could offer potentially attractive rewards.
This series will give you the reader some additional insight into various aspects of the Bear Stearns report. The bullet point version of the Bear Stearns report can be found in the Sirius Buzz article Bear Stearns Upgrades Sirius.
Peck notes that the attitude in Washington differs substantially from that of a popular merger attempt in the past. In his report Peck states that negative sentiment for the Direct TV and Dish merger was palatable in Washington. He does not see this to be the case with the proposed Sirius and XM merger.
Peck states that the biggest opposition comes from the National Association of Broadcasters, and brings to the forefront that the NAB has made several overt funding of several reports. Those reports include the Sidak Report, which was published after an organization called Consumer Coalition for Competition in Satellite Radio (C3SR) “hired” Sidak to generate it. A deeper look clearly shows that this “consumer group” is supported by the NAB, and carries roots with the NAB more so than as a grassroots effort. The Carmel Group also generated a repot funded by the NAB, as did former attorney General Ashcroft (who offered his services/opinion to XM Satellite Radio prior to going to work for the NAB). Simply stated, the most noise regarding the merger is coming from the NAB and NAB funded activities.
Peck feels that were the sentiment surrounding the merger as negative as the Direct TV and Dish merger, that the public would have seen much more negative press from other sources. This simply has not happened thus far with the Sirius and XM merger.
Secondly Peck notes that the Department of Justice and Congress are very astute, and the Wall Street does not give enough credit. Peck cites that his contacts indicate that both the DOJ and Congress are “keenly aware” of the maneuverings of the NAB. He also believes that the NAB “doth protest to much”, and at this point is likely hurting their own agenda
Thirdly, Peck is of the opinion that the FCC has shown poise. This is where the infamous self imposed “180 DAY MERGER CLOCK” comes into play. In Peck’s opinion, if the FCC were out to kill the deal that the clock would have already started. This is a subject that I have written about in the past HERE and HERE. Peck believes the tie up is in the language of the original licenses that stated that one entity could not own both licenses. Peck outlines 3 possible choices in regards to this:
1. Waive the requirement: This choice is simple but could wind up getting the FCC into a law suit. The FCC will likely want to demonstrate a high level of thought and due process regarding the merger if this is there path.
2. Review the Requirement – Expedited Process: In this example, the FCC would open the question up for comment and decide the issue along with the merger. It is Pecks opinion that this is the most likely of the paths that the FCC could take.
3. Review the Requirement – Long Process: While similar to option 2, this path could be a 2 to 3 year process. If this path were chosen, it could open up the FCC to litigation from Sirius and XM, and it would very likely be a deal breaker for the merger, in effect killing the proposed merger before the Department of Justice rules on it.
Peck notes that a more realistic path is that the DOJ will render a decision prior to any decisions from the FCC, and that if the DOJ comes out allowing the merger that the FCC could then ratify the decision with restrictions on the new entity. Peck also notes that while the merger is an integral part of his analysis, that the street is overly negative about the merger prospects at this point in time.
Check Sirius Buzz for more analysis on aspects of the Bear Stearns report
Position - Long Sirius, Long XM