With regard to the proposed merger between Sirius and XM, sector watchers have two main questions:
- When a decision will be reached by regulators and
- What are the chances that regulators will approve the merger.
Opinions for both are varied. The latest opinions come from Paul Gallant of Stanford and James Dix of Deutsche Bank:
STANFORD REPORT EXCERPTS
Sirius-XM Moving Along at DOJ We are raising our odds of XM-Sirius receiving merger approval from 60 to 70%. We believe the Department of Justice’s (DOJ) Telecom Division staff has (at least tentatively) recommended that DOJ challenge the merger in court, but that DOJ Antitrust Chief Thomas Barnett has raised questions about the staff’s views. We do not believe any final decisions have been made, but we are inclined to take Barnett's questions as an incremental positive for ultimate deal approval.
By itself, the staff’s apparent opposition would certainly be a negative development. And the precise nature of Barnett’s questions is not clear – and that is relevant in gauging how he will ultimately rule. So it is still possible that the staff will ultimately persuade Barnett to challenge the deal in court. But our read is that staff outlined its view of the strongest case to be made against the merger and that Barnett had some reservations, which we would view as incrementally positive for final merger approval.
As for timing, we suspect the questions raised by Barnett indicate an ongoing dialogue with staff that could result in a final DOJ ruling by mid-December. If the FCC follows with its own approval (which continues to be our expectation if DOJ approves), merger closing by year-end appears unlikely because it would require (1) immediate circulation of an approval order by FCC Chairman Martin following DOJ's approval; and (2) review (including time for outside lobbying) and approval by the full FCC within two weeks, which strikes us as unlikely, particularly during the late December holiday season.
DEUTSCHE BANK REPORT EXCERPTS
Merger update: wait 'til next year?
Some input from antitrust attorneys at a two-day conference last week
We attended a two-day conference in Washington, DC last week for antitrust attorneys, primarily those in private practice or at government regulators, including the Department of Justice and the Federal Trade Commission.
Survey suggests risk of DOJ challenge may be more real than we thought
At the conference, we conducted an informal survey of 17 antitrust attorneys relating to the Sirius-XM merger. Those expressing a prediction on the issue of regulatory approval had close to 100 years of experience practicing antitrust law. The survey was anonymous and not meant to solicit the formal legal opinion of any particular attorney or (even by implication) government agency on the issues involved in the matter. The results of the survey were:
1) median probability given to merger approval was roughly 47%, the average roughly 48%;
2) 33% predicted that the DOJ would approve the merger, while 67% predicted that the DOJ would challenge the merger; and
3) the consensus was there would be a public announcement of the DOJ's decision in early 2008, with relatively little expression of the view that it would be announced this year. The survey results were a mild surprise, as we have believed that the FCC is the higher hurdle than the DOJ.
Alas, a shortage of one-handed attorneys
We flesh out a bit here our current merger view. Our (at this stage, less than satisfying) view that the chance of DOJ approval is in the neighborhood of 50% rests primarily on our assessment of the issues and discussions at the conference with antitrust attorneys (many of the ‘on the one hand … on the other hand’ variety) about various aspects of the procedure and substance of the DOJ’s merger review. While we take some comfort that our current view is consistent with the results of our survey, we believe our survey was simply too small and unscientific to be an independent basis for our conclusion. Just as importantly, the ultimate determination may well rest on facts and/or analyses of which both we and the survey participants are unaware.
On timing, we do not believe the shareholder votes in favor of the merger last week or the merger’s termination date of 3/1/08 will affect the timing of the regulators' review. The termination date could probably be extended if necessary. The DOJ, unlike the FCC, must be prepared to file a lawsuit in federal court to block the merger from closing, in the absence of a consent decree with the parties, and thus late-stage information gathering can serve either to bolster a case prior to bringing a court action or to satisfy remaining concerns in advance of closing the investigation.
Position - Long Sirius, XM