Interesting Merger Issues

February 18, 2007

There have been some that have been critical of SSG for covering the merger subject. They seemed to feel that there was no possible way that these companies would ever get together, and further, that a deal would never be approved.

SSG has covered the subject extensively over the past year, and has always stated that it was the responsibility of these companies to at least consider a merger given the synergies that could be realized.

When news went around the street that FCC Chairman Martin spoke against a merger, we cautioned our readers that Martin could not make such comments, and that likely what he stated was taken out of context. We informed SSG readers that Martin would not be able to "pre-judge" such an issue, and that his comments would need to be very limited until such a time the issue was brought before him and the committee. We also advised readers that the Department of Justice would be the likely arm of the government to determine whether or not a merger would fall within the laws, and that the key element in that determination would be the definition of the market and competition.

Sirius and XM have obviously been working on this issue for quite some time. Both companies would have done a lot of research into governmental issues as well as financial issues. What is obvious here is that these companies felt strongly enough about possible approval that they have taken this step.

Now, I feel compelled to address a key issue that investors will be sure to see over the next several months. investors will likely see many people insinuate that this is purely a move to keep the stock price up, and that these companies have no intention on actually merging. For those that think this way, consider this......

The terms of a merger are all worked out prior to any announcement, and these terms are cast in stone. Once an agreement is reached, the companies seek out approval. if the merger is approved, then the deal happens as it has already been written. Does anyone really think that these companies would proceed with this with an actual intent for failure, but rely on the government, an outside entity, to quash the deal? There is far to much at stake for such a risk.

This deal is done, and now will take its natural progression. Interestingly, on the XM side of the house, there are very few shareholders that can make this determination on behalf of the entire group. Ten institutions hold over half of the stock. For Sirius shareholders, it is the retail investor that holds the cards.

Likely investors in both equities will be watching the market closely tomorrow, and the press will be seeking comment from the companies, analysts, government agencies, etc. on a side note, I would also look for some sort of settlement regarding the XM and RIAA suit in relative short order.

2/19/2007 03:45:00 PM

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