FCC, Martin, and Merger

The satellite radio sector has been buzzing with merger speculation for a while now, and the subject has received a lot of coverage. Proponents of a merger cite the potential synergies that would be brought about, and that can not be debated. Opponents of a merger cite the current language in the licenses that speaks specifically to a merger not being an being allowed.

So what has happened?

The real answer is nothing. The comments by Kevin Martin were exactly the response that he could give on the subject.

FOR EXAMPLE:

If Martin was asked, "Are there rules in place that prevent a merger of XM and Sirius?"

His answer would have to be YES

If Martin were asked, "Can the existing rules be changed and/or modified to facilitate a merger between XM and Sirius?"

His answer would likely be that he does not have a case in front of him, but he and the commission would have a responsibility to review such a matter if one was presented

Without having been presented the outline for a potential merger, the FCC Chairman is very limited in what he can and can not say regarding the subject. He has to speak in a manner that relates only to the facts as they exist today. He can offer very little in terms of speculation, and takes on a big risk if he does delve into speculation.

WHERE DOES THIS LEAVE INVESTORS?

First, for the time being it leaves investors in a holding pattern having to weigh and consider all of the possibilities that could play out. As we stated earlier in the week, there are many things to consider, and one of those things was what would happen in the event a merger did not happen.

Second, it helps a savvy investor understand what type of premium the merger speculation has on each equity.

The bottom line here is that there is no substantial news that happened with the subject. Martin commented in basically the only way he could, and shy of any type of follow-up questions, that is likely all he will say at this point.

The subject of a merger will remain speculation until such a time that a next step can be taken. That next step is either nothing, or an announcement that Sirius and XM intend to try to Merge. Until that happens, speculation will rule the day, and the comment of the moment will cause the price of these equities to swing.