Bear Stearns Issues Report On Sirius and XMSR – Cites Likely Merger Approval Based On Merits
Report Excerpts:
Expect a More Concrete Proposals in XM/Sirius’ Reply
No New Issues Raised in the Petitions to Deny.
During the past 30+ days since the FCC “clock” started, a number of entities have filed their comments both for and against the proposed merger. In reviewing the petitions to deny, we came across a number of issues/themes that the commentators highlighted, including the following; however, we did not find any significant issues that had not been raised earlier during the congressional hearings or the FCC process.
Expect the Companies to Go Beyond Just Rebuttal and Discussion on Competition —
XM/Sirius’ Reply Likely Will Contain Concrete Proposals on Public Benefits. In their response, we believe XM/Sirius will not only rebut the arguments raised by the entities petitioning against the merger, but likely will go beyond just discussing the competition in the audio market. We expect the companies to go into more detail about their proposals regarding a la carte, price guarantees, block and rebate, reduced pricing for basic packages, as well as pricing for the “best of both” drawing regulatory focus towards the tangible consumer benefits that will arise from the merger.
We Believe the Merger Likely Will be Approved on Merits. There has been a lot of debate on whether the proposed merger between XM and Sirius would be allowed to proceed by the DOJ/FTC and the FCC. After attending several congressional hearings, reviewing recent FCC filings, speaking with various legal and political contacts, and working through the merits of the merger proposal, we believe the proposed merger is likely to pass regulatory hurdles with appropriate concessions. We underscore though, if political forces are more powerful than the merits of the deal, the outcome may be different. However, our sense is that the deal will be judged on merits and is therefore likely to pass. Our opinion is in fact a vote of confidence in the FCC and DOJ, who we believe will base their decisions on what’s best for consumers and the American public.
Position – Long Sirius, Long XM -IMOJB
First, to get the disclosure out of the way, I do some consulting with the NAB.
Second, Sirius and XM are spouting the same ‘ol tune but we’re not buying ad apparently investors aren’t either as shares of the two companies have fallen more than 15% since the merger was announced. This merger, if approved would created a monopoly in the satellite radio market that would hurt consumers.
Clearly XM and Sirius have launched a publicity onslaught of late claiming widespread support for, “3,500 favorable comments from individuals and 20 prestigious organizations and businesses.” However, citing supporters like Sirius business partner Frank Sinatra Enterprises doesn’t lend much credibility to the cause.
Interesting comments, and thank you for your readership.
The relative stock price of these equities at this point in time has little to do with where things will actually pan out. The more that people believe a merger will happen, the more you will see these equities trade at a 4.6 to 1 ratio. early in the process, the doubters will always be more numerous.
As to the “monopoly” term.
If a market is defined as narrowly as satellite radio, then perhaps a monopoly condition can be argued. However, the market could be very broadly defined as well.
The assertion that terrestrial radio is not in competition with satellite is extremely far fetched. I think this will bear out quite clearly