It was nearly one year ago that the news of a proposed merger between Sirius and XM was made public. During the past year, consumers have weighed in, hearings have been held, additional information has been sought and supplied. During the past year the ARB play has been as generous as 27% and as stingy as 8%.
Theories on the merger are a dime a dozen. Mine is no more valuable than the next guys, but some theories that I have seen simply struck me as quite odd or humorous:
THE LONGER IT TAKES THE MORE LIKELY A NEGATIVE DECISION THEORY
This theory is a classic. Proponents of this theory come to a conclusion that a long and drawn out process means that the results can not possibly be good. The more interesting aspect of this theory comes from those that believed the merger would fail in the first place. They initially gave low odds to merger passage and seemed steadfast in their opinion, almost as if the regulators would slam the merger in short order. When it did not happen, they switch gears and shift to the "It's Taking A Long Time" mode. They say that the reason for the lack of a decision is because regulators are shoring up their case for denial so that their decision will not be overturned in Court. The problem... if it was such a slam dunk as a denial, how hard would it be to shore up the case against the merger? The fact of the matter is that the length of time involved is neither a positive nor a negative with regard to whether the merger will pass or not. Those who felt the odds of passage were 40% or less initially lose credibility when they take this stance.
THE LONGER IT TAKES THE MORE LIKELY IT IS TO PASS THEORY
This group sees the length of the process as validation that the regulators are strongly considering passing the merger, and merely working out the details or ensuring that each "I" is dotted and each "T" is crossed. Yes, the DOJ will make every effort to ensure that all of the details are in order, but that process has been happening all along. The group that felt that passage would happen no matter what get frustrated by the length of the process, and the length of time it has taken simply adds to that frustration. The length of time is frustrating for anyone following the sector, however, the fact that this has taken a year does not mean that the odds of passage have increased. Personally I tend to think that the length of time that has passed is positive in the sense that a denial has not happened. Those that felt the odds were 60% or better have taken shots on the chin because of the length so far, but their argument is a better one than the 40% or less crowd above.
THE POLITICAL PRESSURE IS STRONG THEORY
This theory actually has some merit if looked at as a factor of the merger. Political pressure is indeed strong, but it is also well known why that pressure exists. This merger involves a segment of the market (media) that has had their fingers in Washington for quite some time. The opinions of congressional members, either for or against the merger, carry weight, but also grains of salt that regulators are well aware of. Early political stances against the merger arrived at the FCC prior to even all of the merger related information being distributed. With very few exceptions, these same congressmen have not filed anything stating that they have reviewed details further and still maintain the same opinion. It is political pressure and oversight that perhaps have been factors in the length of time involved. This merger is under a microscope, and thus regulators are following procedures and likely triple checking their work. The political pressure is strong on both sides. Another factor when looking at political pressure is what a political figure has to gain in the process. Do they expend political points in taking their stance? What carries more political risk? Being against the merger or for the merger? What do they gain or lose by supporting it? What do they gain or lose by coming out against it? These factors are considered by all in the process.
COMPETITIVE OPPOSITION IS STRONG AND THUS BAD FOR THE MERGER
Of course it is strong. How often do you see competitors politely stand aside as a merger in their sector transpires? NEVER. The comments from competitors in the sector get due consideration, but at the end of the day they need to demonstrate that the merger would hamper competition. In this case, the issue is how the market is defined.
THE MARKET WILL BE NARROWLY DEFINED THEORY
Think about this one. Everywhere we turn, there are companies hopping into sectors and business that they typically were not in before. Companies are EXPANDING their presence, not getting more narrow and concentrated. Radio is expanding. Thousands of radio stations now broadcast on the Internet. Clear Channel is more than a radio business. It is a media business. Look at a billboard. Chances are that you will see Clear Channel on it. Media Cross Ownership was just recently decided on. It now allows expansion of media ownership and cross ownership between radio stations, television stations and news papers. This is happening because the barriers that once existed are substantially lower now. The Internet is a force that has companies with IT departments dedicated to increasing web presence, as well as other methods of exposure. In the last five years technology has boomed. A cell phone is no longer just a phone. iPods dominate the MP3 world as consumers find new avenues to get their audio entertainment. The regulators look at not only the competitive landscape today, but into the future as well. Even record companies are considering getting into the consumer end of the business. Any reasonable person will not conclude that things will stand still.
Clearly the lack of a decision is frustrating no matter what your position on the merger is, but what investors need to do is consider the various aspects of this merger from as many perspectives as possible and come to a decision as to their course of action. No decision yet... that's right... changing your basis on merger odds because of it... questionable behavior in my opinion.
Position - Long Sirius, XM