Earlier this week James Dix of Deutsche Bank published an interesting note with regards to the proposed merger between Sirius and XM. Some who take a cursory perusal of the information may well come away with a mixed opinion on merger prospects. However, a deeper look into what Dix stated is worth your while.
The note stated, "we conducted an informal survey of 17 antitrust attorneys relating to the Sirius-XM merger. Those expressing a prediction on the issue of regulatory approval had close to 100 years of experience practicing antitrust law.
The average time practicing anti-trust law for the group was 5.88 years. While that does illustrate some level of experience in the field, it would not equate to what many would term as seasoned in the practice. However, what this crowd lacks in years of experience may well be offset by the fact that individuals in their age bracket likely carry a better grasp on today's technology environment and how fast it changes.
Dix also stated, "1) median probability given to merger approval was roughly 47%, the average roughly 48%; 2) 33% predicted that the DOJ would approve the merger, while 67% predicted that the DOJ would challenge the merger"
These bits of data are interesting. On one hand this group seems to indicate that the merger has about even odds of passage (8 say it will pass, and 9 say it will fail). On the other hand, 2/3 of the group feel that the Department of Justice will challenge the merger. This would seem to indicate that some of those (2 0r 3) that feel merger passage will happen see it occurring in the court system (similar to the Whole Foods and Wild Oats).
Another interesting item from the note states, " the consensus was there would be a public announcement of the DOJ's decision in early 2008, with relatively little expression of the view that it would be announced this year."
Most have always felt that the Department of Justice would lead the way in the process. In fact, in an analyst note last week, Tom Watts indicated that the staff at the DOJ was set to recommend against the merger, but was perhaps being overridden by Barnett. If the DOJ were to wait until 2008 to decide, an interesting possibility arises. Should the FCC decide prior to the DOJ, Sirius and XM could move to close the deal thereby forcing the hand of the DOJ to either let it happen or sue to challenge. There has been no indication that Sirius and XM would make such a move, but the possibility does exist and should be considered to at least some degree. The FCC has stated as recently as a month ago that they anticipate bringing the matter to a vote in the fourth quarter of 2007. The FCC has also just received (on November 16th) information that they requested from Sirius and XM, and they need to digest that information prior to making a decision.
Dix is quick to point out that the "debate" about the merger amongst this group was varied with "on the one hand....on the other hand" statements. This points to the fact that there can be decent arguments on both sides of the issue. Dix, for his part still maintains merger odds n the neighborhood of 50%.
Personally I believe that a major consideration in this process will be the wave of development that has happened in the last five years, and the pace at which the audio entertainment landscape is changing. I feel that merger odds are stronger than that which Dix outlines, and would put the odds of approval above 80%. The big issue now rests on timing. The Dix report outlines a potential that this merger could spill into 2008. While the possibility of that happening exists, I still feel that the regulators will come to a decision prior to the close of the year.
The FCC does have a meeting scheduled for November 27th. The proposed merger of Sirius and XM is not on the agenda. The media ownership issue as well as low powered FM are both on the agenda.
Position - Long Sirius, Long XM