With any breath of news or any comment, the Sirius and XM stock prices seem to fluctuate. If the news seems positive, the price moves up, if it seems negative, the price comes down. Seems like common sense, but there are a few things that we should all remember and consider:
1. The merger is a process. Even prior to it being announced, the companies knew that this merger would take time, and they would have to lay out their case quite clearly. They were also well aware of certain concessions would need to be made to see this merger come to fruition. Nothing has changed in this aspect of the merger.
2. The Department of Justice was expected to seek a second request for information, and they did. Sirius and XM complied with that request. Since compliance, the DOJ has stated that they are acting as quickly as possible.
3. The FCC commission that will vote on the merger consists of 5 members. Positive votes from three members are what is required. The commissioners have varied histories with regards to consolidation, and certain patterns by which they tend to vote. This was known by Sirius and XM going into the merger process.
4. The goal of Sirius and XM has never been to obtain a five to zero vote. That goal would have been unrealistic. The goal is simply to get a majority vote. Prior to going into this process, they believed that they could obtain that majority. They still believe that today. There has been no real change here.
5. The FCC has stated that they will bring the matter to a vote in the fourth quarter. Nothing has changed in that timeline, and the clock has never been stopped.
6. Analysts that say that the merger is already built into the stock prices seem to be reaching. The very reactions we see demonstrate that there are still many investors sitting on the fence with regards to the merger. Yes, the arbitrage has narrowed, but that was a natural reaction to the events, and time that has passed.
7. One major consideration in the merger is the marketplace definition. A broad definition would be merger friendly. A narrow definition would be merger unfriendly. In making a marketplace determination, regulators will not only look at the competitive landscape from today, but what has transpired since the launch of satellite radio as well as what the competitive landscape will look like in the future. There is no denying that technologies are merging, and that more and more companies have very viable ways to get listeners.
8. Public opinion (less the form letter campaign) has been strongly behind the merger. Part of the requirement for allowing a merger is determining whether or not the merger is in the public interest.
What investors need to think about is the upside and downside potential in these equities. Do you believe in satellite radio as stand alone entities is viable? Do you believe that a merger will make these companies a better investment? Do you believe that either company could be a buyout target if the merger fails? Do you believe that the upside is better than the downside? Do you think Sirius and XM have presented a good case to regulators?
In my opinion, these companies have presented strong arguments to support their position. The FCC clock has not stopped, and both regulators have indicated that a decision should be forthcoming without much in way of delay. One thing I consider strongly is that many analysts looked at this merger (the companies both did extensive studies) prior to it being announced, and came to the conclusion that it had a better than 50% chance of passage. It is my opinion that Sirius and XM have bolstered those odds throughout the spring and summer with various filings, pricing plans, a-la-carte programming, consumer guarantees, and strong arguments relating to the competitive landscape.
When various news emerges over the coming weeks, and the stock prices fluctuate, investors should remember that this is a process, and the fundamentals of that process remain in tact.
Position - Long Sirius, Long XM