Merger Worries Slap Sirius

Concerns about the XM (XMSR Quote)-Sirius (SIRI Quote) merger are mounting on Wall Street.

Judging by the steady slide in satellite-radio stocks since the two companies announced their big tie-up three months ago, it seems investors are growing less confident that the proposed union of the two pay-radio shops will survive regulatory scrutiny.

XM and Sirius shares are both down 30% since the deal was announced in February. The shareholder anxiety has helped trim the value of the deal to $3.8 billion from as high as $5.5 billion in the early post-announcement euphoria.

Wall Street seems to be taking its cue from leading legal experts in Washington, D.C. They agree that the most formidable challenge to the merger will come from the Justice Department's antitrust review.

XM and Sirius will have to convince the agency that their biggest competition isn't each other, but other sources of news and entertainment -- like conventional and digital radio, iPods and mobile Internet devices, the experts say.

"Determination will likely turn on what the product market is," says an antitrust lawyer who is not directly involved with the case. "They will have to win on the market definition argument," says another Washington antitrust attorney who is following the case closely.

That's not to say that all the consumer implications have been solved, observers say. But so far, the Federal Communications Commission has shown a willingness to consider a merger that by its own rules is a violation. When the radio spectrum was originally licensed to only two companies, the terms called for separate ownership that would foster competition. The FCC, though, has said those rules can be rewritten.