Yesterday was a bit of an odd piece of news on the XM Satellite Radio (XMSR-NASDAQ) and the SIRIUS Satellite Radio (SIRI-NASDAQ) merger.  A group of more than 70 US Congressmen (72 members according to public news reports) signed a formal letter in opposition of the merger.  Sure, the National Association of Broadcasters, which is vehemently against the merger, probably backs many of these congressmen.  But the truth is that it isn’t just rare for a large group in Congress to sign a letter against a merger.  Sure, there are oversight committees and interest groups that speak for or against such issues, but this is different.

M & A Researcher (www.maresearch.com) has maintained a one in three chance that the merger succeeds, although it notes recent political involvement tends to push the odds down slightly and that it is too early to suggest that opposition can not be overcome.

Yesterday’s news of Volkswagen carrying SIRIUS satellite radios in 80% of its models mattered very little because of the opposition.

What is very interesting is that the National Association of Broadcasters has been very much against this merger and they are in my opinion the ones ultimately behind yesterday’s push.  The reason for opposing this is simple: Follow the money, like I’ve always maintained.  If they can block this merger, it may implode one or both of these as a viable and financially healthy operation.  SIRIUS did get financing already that will help carry it if needed, but it will potentially put the creditors in control of the company if the worst case scenario occurs.  XM can do the same, and has already made a creative financing pact by selling off satellite nodes that basically created a real estate value to a satellite in orbit.

This is a long ways from over.  What else is certain is that the satellite radio companies need and want the merger to get approved and to go through more than the opposition wants it blocked.  Terrestrial radio has been under fire in a manner that you would think they are a newspaper association, although satellite radio has yet to crush it.  There is room for both, and it is obvious the terrestrial radio operators are trying to kill the competition.  If satellite radio was a critical infrastructure operation the blockage attempts would make sense in that it would be a true monopoly.  But the monopoly here that would be created is truly just a monopoly on an alternative system that is purely opt-in and comparably one that costs money versus what is free.

SIRIUS shares are down another 1% today at $2.86 and XM shares are down 1.6% at $10.77.  As noted, this one is a long way from over. 

Jon C. Ogg
June 20, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in any of the companies he covers.

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