Monday, May 22, 2006

Sirius and XM Merger??

May 22, 2006

Wait, Wait, Wait. We are not saying that this is going to happen, nor whether there are even any talks happening between Sirius and XM. We are commenting on some of what happened during the Sirius presentation at the Lehman Conference that David Frear of Sirius Satellite Radio spoke at this morning.

During the question and answer session, the question of a merger was brought up. Frear responded by saying, "...Putting the two companies together would make a lot of sense from an economic standpoint. Not sure what the government would say....."

If you sit back and toss all of the potential hurdles aside, what Frear said makes a lot of sense.

1. Overhead costs would be reduced dramatically.
2. The perception that these two companies are in various bidding wars would disappear.
3. Marketing costs would be much more reasonable.
4. The sharing of technology.
5. The merged company would have stronger negotiating power with OEM's.
6. The merged company would have stronger negotiating power with chip manufacturers.
7.The merged company would have stronger negotiating power with retailers.
8. The merged company would have an increased ability to deal with the RIAA.
9. The merged company could take on the MP3 world instead of each other.
10. The merged company would enjoy a much stronger cash flow position.

Many people think that the government would not allow such a merger. Satellite radio is a duopoly that would never be allowed to make it a monopoly. The question however is this.....Is satellite Radio really a duopoly? Cell companies are now venturing into the digital music world. HD radio is doing the same.

Six months ago, the thought of a merger was not as attractive as it is today. With depressed stock prices that satellite radio has seen so far in 2006, a merger becomes something that is now crossing the mind of many people, even if only as a fantasy.

Would it make economic sense to merge? YES
Would there be many hurdles to clear? YES
Would the stock prices of satellite radio appreciate? INSTANTLY (In my opinion)

5/22/2006 12:44:00 PM

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