Momentum for XM-Sirius Grows Despite Regulatory Silence
The odds have improved that regulators will approve the XM Sirius merger, agree analysts covering the satellite industry. Little has changed since the merger was announced in February, mostly to negative reviews by Wall Street, analysts said. The Department of Justice has been tight-lipped on its review. FCC Chairman Kevin Martin has said little indicating support or opposition to the merger. The biggest related development has been a federal judge’s refusal to block Whole Foods’ purchase of Wild Oats -- a merger the FTC opposed.
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XM and Sirius have done a good job lining up support, satellite industry analyst Tim Farrar told us Friday, adding that Wall Street seems to be playing catch-up. “Momentum really shifted in favor of XM and Sirius with the expert opinions in the FCC docket in July,” Farrar said. “XM/Sirius have done well getting the ex-FCC commissioner on their side and the opposing economic submissions were fairly weak.” Farrar also cited “less continued noise” on Capitol Hill regarding the proposed merger, as well as enthusiasm for the iPhone, which he said “has made some people re-evaluate the strength of alternatives to satellite radio.”
Blair Levin, a Stifel Nicolaus analyst, always has been more optimistic than many of his peers about the merger. He agrees that there has been a shift. “A number of analysts have revised their odds upwards, including several who once thought it would be denied now saying it is likely to be approved,” he said Friday. “As to why they have shifted, you'd have to look at the individual reports but I don’t think any are claiming to have inside information at the DoJ.”
A satellite attorney cited the Whole Foods-Wild Oats deal. The DoJ antitrust division under President Bush has hesitated to challenge mergers in court in cases it might lose; the Wild Oats outcome reduces the chances of a challenge in XM/Sirius, the source said. “Trying to stop a merger has become more difficult in the courts over the last several years and the Wild Oats case is another example and a recent example.”
The last time the FCC acted before DoJ against a merger was in October 2002, when the commission opposed the EchoStar-DirecTV deal. But in that case, Chairman Michael Powell signaled well in advance his concerns about the merger; Martin has been more neutral on XM-Sirius, the lawyer said.
In a hit to the merger, the American Consumer Institute criticized its implications for consumers. “Shorn of rhetoric and spin, the merger would create a monopoly in what is now a duopoly in a distinct line of business with clear-cut boundaries delivery of nationwide, mobile, diversely-programmed audio entertainment services,” a report said. “A merger would result in less choice, elimination of spirited competition between the two companies, very likely higher prices and, on balance, less program diversity over time. It should not be allowed.”