Tuesday, January 23, 2007

Merger - More To Consider

January 23, 2007

With all of the merger speculation, various opinions will surface as to how likely it is and what the hurdles would be. One popular opinion out there is that Sirius and XM will "try" a merger, but really will not want to merge, and in the end, the merger will fall through.

There are several problems with this opinion.

When companies decide to merge, or a buyout is decided, all of the details of the deal are worked out prior to the announcement. In other words, the terms of the deal have already been negotiated, and cast in stone. At that point the merger or buyout is announced, and it goes to the appropriate governmental agencies for approval. If approved, the deal goes through, and everything moves forward. If not approved, the deal does not go through.

These companies are publicly traded, and the boards carry a fiduciary responsibility to the shareholders. To attempt a "merger ruse" where the companies seek out approval for a merger without the intention of merging would be not only irresponsible, but would likely land several people in prison. Further, the risk would be huge whereby they would be relying on the government to act one way or the other, and there is no guarantee that the government would move in the desired direction (opinions of our government in action aside).

Thus, the "trial balloon" of a merger is what is happening now. The companies can gage shareholder sentiment, gage the likelihood of government approval, and negotiate in the best interests of their respective shareholders. If such negotiations are taking place, once an agreement is reached, it is a "done deal" as far as the terms go, and from that point forward becomes an all-or-nothing scenario.

An interesting aspect of this potential deal is that in the case of XM Satellite Radio, only about 10 shareholders would need to be contacted (although all would have voting power). About 60% of XM’s stock is held by roughly 10 entities. For Sirius, the retail investor carries the stick with roughly 70% of the shares being held by retail investors.

Whether negotiations are being held is unknown, but comments regarding the subject have been made by both Sirius and XM management, and merger scenarios are being developed at a feverish pace by analysts covering the sector.

If a merger were to be announced, the window is fast approaching. At this point speculation is that approval could take as long as 1 year. With an election happening in November of 2008, many government agencies grind to a virtual halt on anything that requires a decision by about June (5 or 6 months prior to election). Taking this into consideration, and if these companies are considering a merger, the prudent move would be to leave enough time for the current administration to consider and decide on the issue. A 3 month cushion would be about the smallest cushion you would want, and would mean some sort of announcement by the end of March. Obviously, a bigger cushion would mean an earlier announcement.

In my opinion, if this is being considered by Sirius and XM, the window to announce is between now and the end of February, and if they are going to attempt it, the earlier they announce the better.

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1/23/2007 11:47:00 PM

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  • SSG - I think it may even take more than a year for approval. Mega media mergers are complex. But I am wondering why they haven't announced anything yet? I have never seen so many rumors in articles without an announcement from the companies. This has been in the papers for months now. Its baffling.

    By Anonymous MUSCLE13, at January 23, 2007 11:59 PM  

  • Yes a merger could fall apart for many reasons or be blocked.

    honestly both would love to control the others spectrum.

    only a very foolish management team could enter into talks of this nature and expense, without a downside risk plan in place.

    Its a big dollar chess game being played by the game masters,whom better have something to show their shareholders with or with out a completed merger.

    a merger would be great.for all parties.

    that said, sirius would be in big trouble with all investor's for allowing the pursuit of this issue with no other end game in site.

    so the question now becomes, whats the bottom line for sirius,i think its simple, interoperal devices as mandated by the fcc for use in the home,mobile devices and dashboard.

    with the currently growing retail sales percentage higher for sirius based on the consumer selection of content alone at retail.

    I think the oem area would also follow the same trend and result in lower overall sales for xmsr now toss the soon to be launched video service into the mix and things could become much more painful for xmsr shortly.

    So does sirius care and have they been honest yes.

    they would love a merger..but will settle for the interoperal device issue being regulated into the game as it will result in the same net effect.

    By Anonymous tim wallick, at January 24, 2007 8:24 AM  

  • All we do lately is talk about the merger - I propose that the entire blogging community protest the rumormongering by declaring a three-day period in which we completely ignore the merger. Just boycott it. I don't care if Jacoby's father's brother's nephew's cousin's former roommate said that the merger might possibly kinda sorta maybe happen someday, let's just ignore it :)

    By Anonymous Anonymous, at January 24, 2007 9:19 AM  

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