Merger News

After months of delay tactics, hundreds of Ex Parte filings, and even going to the extreme of creating an internet survey where only those responding against the merger were forwarded to the FCC, the National Association of Broadcasters had surprisingly little to say upon hearing the news of the FCC’s approval.

Dennis Wharton stated, “Today’s vote certainly comes as a disappointment to NAB. We continue to believe that consumers are best served by competition rather than monopolies.”

That’s it! A statement from Dennis Wharton. Nothing from NAB President David Rehr, and nothing about the consumers who were for the merger. Perhaps they are busy updating the legislative priorities on the front page of their website to reflect 2008 rather than 2007. Or maybe they are trying to figure out what to do with that space on their website dedicated to opposing the Sirius and XM merger.

Position: Long Sirius, XM.

We have just learned of a revised commitment letter filed with the FCC Friday, which details all of the voluntary concessions agreed to by Sirius and XM, in regards to the recent FCC decision.

There are some interesting items of note including a statement that the combined company did not expect to cause or see a reduction in royalty payments as a result of its new offerings, although no commitment was actually made in this regard.

Sirius has voluntarily agreed:

• To work with the commission to resolve all outstanding WCS/Interference issues by the end of 2008
• To make available immediately, the plans and specifications for an interoperable radio available for license to equipment manufacturers; and within 9 months of the merger offer for sale an interoperable receiver in the retail aftermarket
• Not to originate local programming or advertising through their repeater networks
• Provide open access and not enter into any contract that would ban other technologies such as HD
• Reiterated its 36 month price freeze
• Clarified its public interest set aside proposal to include not selecting a programmer to fill more than 1 such channel on each platform, as long as the demand for these channels exceeded the available supply.

All of these concessions are offered voluntarily rather than as a government mandate.

In the end it would appear that Ibiquity, the NAB, Chester Davenport of Georgetown Partners, Jesse Jackson of Rainbow/Pu$h, C3SR and the numerous puppets of the aforementioned groups received absolutely NOTHING in exchange for the money they threw away. In the end, the system worked and America has prevailed!

[ FCC Filing ] Via [ Sirius News & Rumors ]

The long awaited conclusion of regulatory purgatory that began on February 19, 2007 for Sirius, XM and their shareholders is over. The merger was officially approved when the consent decree was signed moments ago. As advertised, the commission vote fell along party lines with a 3 – 2 split decision.

The definitive agreement indicates that the companies will be combined in a tax-free, all-stock merger of equals. Terms of the deal call for XM shareholders to receive 4.6 shares of Sirius common stock for each XM share held. The transaction is structured as a merger of equals, with Sirius and XM shareholders each owning 50 percent of the combined company.

In a victory for consumers, the content of Sirius and Xm will be joined and in most cases will cost less with a la carte packaging, a revolutionary idea that allows Sirius and Xm listeners to pick and choose the package that best suits their needs. The voluntary concessions include:

• Turning 24 channels over to non-commercial and minority programming.
• Three year price freeze
• Open Access
• A-La-Carte pricing available within 3 months of deal closure

Concessions agreed to as part of the enforcement issues included requirements that the companies:

• adopt comprehensive compliance plans, and take steps to address any potentially non-compliant radios remaining in the hands of consumers;
• in the case of XM, within 60 days of the order adopting the Consent Decree, shut down 50 variant terrestrial repeaters, and shut down or bring into compliance an additional 50 variant terrestrial repeaters;
• in the case of SIRIUS, bring into compliance or shut down up to 11 variant terrestrial repeaters within 60 days of the order adopting the Consent Decree. These terrestrial repeaters were shut off by SIRIUS in October 2006 ; and
• make a voluntary contributions to the United States Treasury of approximately $17 million in the case of XM, and approximately $2 million in the case of SIRIUS.

The FCC will open a new case to look more closely at HD inclusion. Additional concessions were not released at this time.

[ Via AP & Reuters ]

UPDATE:

Sirius closed at $2.25 per share on July 25, and XMSR closed at $9.28 per share. If Sirius and XM close the deal tonight (court is open til 11:00 PM), then the arb spread was $1.08 on XM shares, making for a good trade.

Thinking about it a bit deeper, there are likely a few things that Sirius and XM need to wrap up prior to getting the deal consummated. I think Monday afternoon will be the consummation date.

Position: Long Sirius, XM.

Reuters is reporting that the Federal Communications Commission were given a new draft proposal today that would give conditional approval of Sirius’ purchase of XM quoting an agency source:

“The FCC revised approval order circulated among the commissioners would allow the deal proceed as long as the companies met a series of consumer protection conditions. ”

Update states that merger could be done this evening, with all votes in. Concessions seem to remain as expected…

[ Via Reuters ]

Broadcasting & Cable is reporting that a stalemate is taking place which appears to be a lack of trust on the part of Martin in regards to what Tate will do.

A source is cited ”close to the chairman’s side of the negotiations, commissioner Tate, FCC chairman Kevin Martin’s fellow Republican, had not yet signaled her willingness to sign off on the merger”

The article goes on to say that that Martin doesn’t want to vote on the enforcement issues until Tate votes for the merger, yet Tate won’t vote for the merger until Martin votes for the fines…

These are the people running our government? Unbelievably childish!

[ Via Broadcasting & Cable ]

We have just been made aware that the issue of HD inclusion in SDARS receivers may be reviewed in a separate FCC process.

In a filing made public moments ago, NPR states:

“The message referenced a proposal to condition Commission approval of the XM-Sirius merger on the contemporaneous initiation of an expedited notice and comment proceeding regarding the inclusion of HD receiver capability in satellite receivers. NPR fully endorsed this proposal as an essential means of assuring the broad availability of local HD services to the public.”

As I stated yesterday, the recent attack from the NAB was cause for concern…Let’s hope this issue takes another 17 months to resolve. A separate filing references ”the pending notice of proposed rule making.”

[ FCC Filing ]

After watching the action of the stock price for the last 2 days, I’m convinced the manipulation of SIRI and XMSR will continue unfettered despite SIRI being listed on the Regulation SHO Threshold List for the last 3 weeks. It’s apparent that threats of naked shorting crackdowns by the Securities and Exchange Commission are having little effect on Sirius; except to the extent that the manipulators are avoiding bank stocks and have seemingly turned their attention to a couple of non-essential securities like Sirius and Xm.

So what can be done about this? If the SEC will not protect the shareholders of Sirius, perhaps its time that the company did. I would suggest that with the merger details being ironed out, it may be time for Sirius to consider changing its symbol to more reflect the merged entity, possibly to SIRX or the like. The symbol wouldn’t matter, as long as it is not SIRI.

I used to work for Dean Witter, which was one of the biggest and most respected brokerage firms in the nation. When we merged with Morgan Stanley, the symbol changed from DW to MWD. Morgan Stanley now trades as MS. Old timers may recall that Sirius was originally named CD Radio Inc., and traded under the symbol CDRD.

I sincerely hope the company is considering a ticker change. The benefits of a fresh start would be a welcome change. For starters all program trades would be rendered useless. All high limit and stop loss orders would need to be reentered. The market would be free to redetermine the value of the merged company.

As I stated in my last article, the best outcome for shareholders would be a Friday after-hours announcement of approval. Not only would this give the company an extra day to consummate the deal, it would castrate the NAB, which I’m sure is parked outside of a D.C. courthouse right this moment with filings in hand. By Monday morning, the deal would be complete and unstoppable.

Looking ahead to Monday however, and assuming all of this happens, we would probably see Sirius bid higher. Program sell orders would then take effect and begin to knock the price per share back down precipitously as we have seen done since yesterday when the stock opened at 2.75. A new symbol would prevent this and allow the market to revalue the combined company, in a fair and balanced way.

Position: Long Sirius, XM.

According to Broadcasting and Cable, a few details of the consent decree that will allow the merger have come to light. It is thought that commissioner Tate, who wanted to ensure enforcement issues were taken care of, moved up the timeline on open access as well as the interoperable receiver.

According to B&C’s source, open access will happen immediately upon merger approval, and an interoperable device will happen within 9 months rather than 12 months from merger approval. It was stated that the merging companies agreed to these terms.

While there have been many reports citing approval, the “official” approval has not yet happened. Most agree that the official word can happen at any time.

Thanks Muscle [ Broadcasting & Cable ]

Position: Long Sirius, XM.