Merger News

The National Association of Broadcasters has issued a statement regarding the news reports that the FCC will approve the merger by a 3-2 vote. Once again, the NAB has chosen Executive Vice President David Wharton to be the spokesman, which leads to the question why Rehr is in the back (pun intended). This publication pointed out early on that Rehr was risking a lot by being the frontman of the NAB campaign. Rehr made fighting the merger a central point in his platform. By distancing himself, perhaps the blame pie will not rest solely on him.

Wharton stated:

“This sweetheart deal for Wall Street speculators is premised on a promise that a monopoly will provide consumers with lower prices, better service and more programming formats. Only members of the Flat Earth Society would buy into such specious nonsense.”

A sweetheart deal for Wall Street speculators? Perhaps Wharton was holding the stock chart for these equities upside down. Thanks in part to the NAB delay tactics, this merger has dragged on and on, and investors have actually suffered. Do members of the Flat Earth Society believe that 20 minutes of commercials per hour is good? Is it true that only members of the Flat Earth Society can be members of C3SR? What was their membership again? Oh, they (or you) never did tell us that.

“Just six years ago, the FCC denied a monopoly to the nation’s only two satellite TV companies in a 5-0 vote. Yet today, the Commission is apparently preparing to grant a monopoly to the nation’s only two satellite radio companies that in their 11 years of existence have had more luck flaunting the FCC’s own rules than creating a successful business model.”

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In what could only be called a surprise move at this point of the process, Congressman Charles Gonzales, (D- TX), Congresswoman Hilda Solis(D- CA). , Congressman Bobby Rush (D- IL) & Congressman Ed Towns (D-NY) applaud the efforts made by Sirius and XM and support the offer made by the companies. Didn’t see that coming, did you?

In a joint letter to Chairman Martin, they state in their letter:

“We are encouraged that XM and Sirius have offered to help improve the state of minority ownership and control of media outlets. While we recognize that this proposal is not true ownership of a media outlet, it is certainly a step in the right direction. Should the merger occur, we fully support this voluntary offer.”

[ Reps Letter ]

Finally, we have heard news of Commissioner Tate’s position following a temper tantrum by Commissioner Adelstein. There was a lot of news today as it seemed Adelstein set out to destroy Xm and Sirius stock when he made his vote public and reversed his position. Adelstein had cited a hope for bipartisanship stating:

“I was hoping to forge a bipartisan solution that would offer consumers more diversity in programming, better price protection, expanded choices among innovative devices and real competition with digital radio,” Adelstein wrote. “Instead, it appears they’re going to get a monopoly with window dressing. We really missed a great opportunity to reach a bipartisan agreement that would have benefited the American people.”"

This news wasn’t out 5 minutes when news leaked that Martin was close to getting Commissioner Tate to vote in favor of the merger. Throw bipartisanship out the window! From there a press release was issued seemingly every minute as the day progressed. It is for that reason that I wanted to revisit this.

Now that we know how the vote will turn out, what about the concessions? Adelstein’s statement leads me to believe that the 25% spectrum divestiture is now off the table. If this is true, it looks as though Georgetown will have failed in their hijacking attempt. It also gives the impression that Commissioner Tate has opted for open access which Sirius and Xm have offered, instead of the communistic hybrid digital chip mandate. Ibiquity will actually have to hire salespeople to promote their unwanted product.

The WSJ reports that Sirius will pay a fine and only lists “minor” concessions added. My guess is that the main concessions she is adding will be regarding oversight of the proposed concessions and possibly a few extra channels.

Position: Long Sirius, XM.

The Washington Post is quoting an FCC source that the conclusion may come today.

“The agency is expected to approve the merger and a decision could come as early as today on the XM-Sirius merger, according to an official at the FCC. The source, who spoke on the condition of anonymity because merger review is ongoing, said Chairman Martin is preparing to fine the satellite radio operators for failing to abide by rules to offer interoperable radios for their technologies. That enforcement action has been a condition pushed by Tate. “

[ Via Washing Post ]

According to the Wall Street Journal, FCC commissioner Tate is set to approve the proposed merger of Sirius and XM with a fine of $20 Million fine that is said to resolve several enforcement issues surrounding satellite radio.

Should this news be accurate, the satellite radio companies now have the green light to move forward with their merger.

Once the deal is consummated, each share of XM will receive 4.6 shares of Sirius.

Position: Long Sirius, XM.

[ Via Wall Street Journal]

Be careful what you you wish for, you just might get it. Everyone waits in anticipation of Commissioner Tate’s decision. Speculation runs rampant. Traders want a decision to cash out on the expected rise in the stock price. Arbitrage players wait to cash in on the spread. But what about the investors? People like myself who are investing in these companies for the long term?

Much ado has been made of XM’s 1 billion dollar debt. When the deal was announced back in February of 2007, the value of the deal was nearly 5 billion dollars and priced Xm at a high of about 18.00 a share. The deal has been reduced now to approximately 2.7 billion dollars….A 2.3 billion dollar savings to Sirius investors! At this price Sirius investors are getting a GREAT deal!

We have heard from Copps, Adelstein, Martin & McDowell. If Tate’s vote for the merger was made public this afternoon, the stocks of both companies would presumably rise precipitously. This would continue until the official vote at which point Sirius investors would be paying a lot more for Xm, followed by a sell-off as traders cashed out.

Ironically, the best case scenario for Sirius investors is in fact Tate’s silence up until the official vote. The best case scenario would be a Friday announcement of a completed vote following the markets close. This would enable the board to meet and close the merger over a weekend, and the following Monday morning XM shares would no longer exist. The deal would be done.

Following 17 months of waiting for a decision, patience and tolerance now more than ever, may be in the best interests of Sirius investors, as an official vote may come by the end of the month. 7 days is certainly worth the 2.3 billion dollar savings.

Position: Long Sirius, XM.

FCC Commissioner has withdrawn his original merger proposal offer from the table and cast a no vote on the deal. This leaves the decision on the shoulders of commissioner Tate, who will perhaps cast her deciding vote in very short order.

In a statement Adelstein said, “”I was hoping to forge a bipartisan solution that would offer consumers more diversity in programming, better price protection, greater choices among innovative devices and real competition with digital radio. Instead, it appears they’re going to get a monopoly with window dressing. We missed a great opportunity to reach a bipartisan agreement that would have benefited the American people.”

The Adelstein statement seems to indicate that he feels Tate will approve the deal with minimal added concessions.

Position - Long Sirius, XM

Pioneer has been very vocal in their position with one particular “concession” that has been a frequent subject of the proposed merger between Sirius and XM. The audio equipment manufacturer believes that there should be no requirement to install HD radio chipsets in all SDARS receivers.

Pioneer met with the democrat commissioners (Copps and Adelstein) on Monday, July 21, 2008. This happens to be the same day that commissioner Copps rendered his decision to vote against the merger without taking the opportunity to offer a counter proposal for consideration.

It is Pioneers position that manufacturers should not be required to include HD Radio chipsets into SDARS receivers, and that in fact, a free market should determine whether or not these chipsets are installed.

One item to note is that Pioneer did not meet with commissioner Tate. Tate is widely seen as being the third vote needed for the merger to gain approval, and the fact that Pioneer did not meet with her may be indicative that she sides with the Pioneer position with regard to this issue.

[ FCC Filing ]

SiriusBuzz Radio Live Thursday’s At 9:00 PM EST

Position: Long Sirius, XM.

Analyst Tom Watts was quick to the keyboard after it was announced that commissioner Copps had voted no on the proposed merger of Sirius and XM. The analyst noted that the Copps vote was “no surprise”, and that he was still looking to FCC commissioner Tate for the final approving vote on the merger deal.

Watts notes several points which have been oft discussed by this publication, including the fact that it is enforcement issues, and perhaps not more stringent concessions that commissioner Tate is seeking. “The focus remains on Republican Commissioner Deborah Taylor Tate. Her key concern is reported to be the companies. prior violations of FCC rules in their deployment of repeater towers. An announcement of an enforcement action by the FCC came out last Friday, however, the matter has been under consideration by the FCC for some time. We expect the companies to reach an arrangement that could include a fine and/or a timetable for bringing all repeaters into compliance. Such an arrangement should address Commissioner Tate’s concerns, enabling her to vote in
favor of the deal.”

Watts calls Adelstein a “fallback option” for Sirius and XM, stating that Adelstein has expressed a willingness to negotiate his proposal. Personally I see Adelsteins proposal as a deal breaker, and he would need to move substantially to come to a deal that the satellite radio companies would feel comfortable with. To his credit, Watts see it more likely that the merger will gain approval with Tate rather than with Adelstein, a position I agree with.

Position: Long Sirius, XM.

FCC Commissioner Adelstein has made statements that there is wiggle room in his position on the merger. According to Broadcasting and Cable, the democrat commissioner has indicated that he is willing to negotiate the terms that he outlined last week.

Adelstein said Monday at an annual Minority Media & Telecommunications Council conference in Washington, D.C., that his conditions were negotiable: “I am always open to discussion about what the best outcome is, so, it is not fixed in stone. I am certainly open to discussion”

Likely the largest stumbling block in Adelsteins proposal centers on the requirement to give up 25% of the spectrum. How far Adelstein is willing to negotiate is anyone’s guess. In my opinion, Sirius and XM are likely concentrating on commissioner Tate, who many view as having a more favorable stance on the merger, and would by extension have fewer concessions.

Many feel that Tate will seek more stringent regulatory control rather than concessions such as a give-back of spectrum.

At this point we have the following:

• Martin: YES
• McDowell: YES
• Tate: Undecided
• Adelstein: Undecided
• Copps: Undecided

Position: Long Sirius, XM.