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Sirius, XM resort to FCC-baiting merger

Oprah and Howard Stern in 'merger of equals'

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As we predicted on Friday, subscription satellite radio providers Sirius and XM have announced a plan to merge in the face of rapidly propagating entertainment delivery platforms.

The combined outfit would be worth about $13bn if the stock swap deal completes, as the two firms expect, by the end of this year. Whether the deal goes through or not, the inevitable antitrust investigation would make that timeframe seem optimistic.

The monopoly-creating plan values XM stock at around $18.40 per share. At time of writing, it had risen more than 12 per cent, but at $15.77 was still a way off the offer price, reflecting market doubts that the FCC will let this one slide. As it stands the regulatory regime for satellite radio licensing forbids the move.

As the buyer in this "merger of two equals", Sirius has had a more muted response from its investors. Sirius was trading up almost 7 per cent at $3.95, but still way short of this time last year, when shares were changing hands for nearer $6.

Terrestrial radio trade association the National Association of Broadcasters blasted the game-changing manouverings. Executive Vice President Dennis Wharton said: "When the FCC authorized satellite radio, it specifically found that the public would be served best by two competitive, nationwide systems. Now, with their stock prices at rock bottom and their business model in disarray because of profligate spending practices, they seek a government bailout to avoid competing in the marketplace."

Pot, meet kettle.

There is a glimmer of hope for the merger. Speculating on a possible tie-up FCC chairman Kevin Martin said recently: "The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices." Monopolies are not known for creating the conditions required to drive prices down though.

Rather than stifling such competition and dynamism in the industry, Sirius reckons a monopoly would "create a stronger platform for future innovation within the audio entertainment industry and will provide significant benefits to all constituencies".

Sirius CEO Mel Karmazin, who would hang on to the top spot at the combined provider, also hinted that the much-vaunted advertising-free dogma cold be dropped if the merger is approved, saying: "The combined company will be positioned to...drive increased advertising revenue and reduce expenses." Between them, Sirius and XM would bring $1.6bn in debt baggage to a nascent monopoly. ®

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