Sirius and XM met with Martin, McDowell, and Tate late last week according to Exparte filings with the FCC published today. It would appear to be a case of shoring up the votes that anyone following the issue have always thought were the most likely to support the marriage between the two satellite radio operators. It is possible that there were also meetings with Copps and Adelstein, but records of such a meeting have not yet made the FCC’s filing system.
Approval of the license transfer has been before the FCC for well over a year. The issue had become highly political in recent weeks, and at times, the street began to question whether the political pressure would be too strong. However, the commissioners that do support the deal have always had the ability to cite the public interest as a method of cutting through the fog of other issues that have arisen during the process. With voluntary concessions such as what have been outlined, it would appear that the issue is ready for circulation.
The power of being the Chairman of the FCC is the ability to circulate the draft and call the vote. With logical thinking, because Martin supports the deal, one would imagine that he has held off until he at least has a comfort level that he will win the vote when the time comes. It would appear at this point that Martin is prepared to proceed. It is possible that the concessions outlined can deliver a 4-1 or even a 5-0 vote, but it is too early to speculate on that. Getting a result that is 4-1 or 5-0 would be a political victory for Martin, and would dampen the hopes of those organizations that oppose the deal.
Throughout the merger process there have been opinions on whether or not the deal would come to fruition, and if so what the toll would be. Some analysts and publications that have been negative about the prospects throughout the merger process shifted from surprise at DOJ approval, which they felt would not happen, to statements that the concessions would be too stringent thus erasing any value from the deal, or even so far as causing the companies to walk away. Recent activity shows that neither case is likely.
In my opinion the largest issue at hand centered around the spectrum and/or channels dedicated to informational and/or minority programming. I have always felt that if the company had to surrender spectrum that it would be problematic. It appears that the concession for 24 channels dedicated to informational and/or minority programming do not involve the giving up of spectrum, but rather are closer to the Public Knowledge proposal where the channels are only available if someone is a subscriber. Thus, Sirius and XM still get value out of the channels, while maintaining their spectrum.
Another hot button issue has been open access. There are many situations to consider with this, and the recent information does not provide any real detail as to what exactly is being contemplated. In my opinion, open access can happen in a manner that is not damaging to the business model, and it will likely take some time to implement. The biggest proponent of open access, U.S. Electronics has been silent with regard to FCC filings over the past couple of weeks.
All things considered, it appears that the merger issue will go into circulation with terms that are favorable to synergies, and able to deliver public benefits while preserving synergistic value for Sirius and XM.
Investors, in my opinion, should watch for the status of meeting with commissioners, and at this point be ready for a vote happening in a time frame that looks to be within the month of June.
Position – Long Sirius, XM.