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Stalled Merger Slamming Sirius

Scott Moritz

05/31/07 - 06:05 AM EDT

The merger of XM (XMSR Quote) and Sirius (SIRI Quote) still hasn't reached the launch pad.

It seems the satellite-radio hookup remains earthbound as lobbyists and power brokers face off.

It has been 70 days since the two companies have filed their intentions with federal regulators -- yet the merger hasn't even passed the preliminary review process.

The delay means that the Federal Communication Commissions has yet to start its 180-day merger-review clock.

"This constitutes the longest application-to-clock delay in FCC history," David Trout of M&A Researcher says in a report Wednesday. "There is simply no way to view the delay in a positive light."

Indeed, a look at some other recent deals in the tech sector shows that none took as long as the XM-Sirius proposal to get its regulatory clock started.

The combination of the nation's only two pay-radio providers poses a difficult case for regulators. To sign off, they must be persuaded that consumers would get good prices and better selection with one broadcaster.

An even-steeper challenge lies with the Justice Department. Antitrust regulators have to be sure that the companies have rivals other than each other that would justify the union.

Investors have not exactly shown great confidence the tie-up will roll smoothly through regulatory scrutiny. Shares of Sirius and XM have fallen 22% since the companies announced the merger three months ago.

The deal is opposed by several groups, including the hugely influential National Association of Broadcasters, representing conventional radio station owners. Visits to the agency by these opponents along with some Washington bigwigs have put a drag on the deal, according to Trout.

To see a video interview with Scott Moritz on Sirius' woes, please click here.

Source: M&A Researcher

"It seems relatively safe to assume that the intervention -- in the form of face-to-face meetings -- of several politicians and organizations represented by former politicians is slowing the preliminary review process," Trout writes.

This strategic snail pacing will likely put any potential decision off until next year, says Trout.

"Each passing day without the FCC's pleading cycle and review clock being initiated threatens [investors' hopes for] an FCC decision before the end of 2007," he writes.

The FCC is probably the easier of the two agencies to get the deal past, say Washington-based merger experts. The bigger challenge lies with the antitrust lawyers at Justice.

The deal's OK hinges on how Justice defines the market. If regulators take a narrow definition, with the two players becoming one, the deal's dead, say antitrust experts. If Justice includes wider markets like MP3s and iPods, conventional radio and digital radio broadcasts, there's a chance the deal will be approved, these experts say.

Either way, it's looking more and more like a 2008 decision.

Brokerage Partners