August 27, 2007 11:24 pm
Please email email@example.com or call:Europe: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714 for further information on dealReporter and how to receive more articles like the one below.
The two main regulatory approvals needed to clear the XM Satellite Radio Holdings and SIRIUS Satellite Radio merger are believed to be in their final phase, it is understood. It is also understood, however, that the process could still take several months.
Meanwhile, lawyers interviewed for this article are skeptical as to whether the recent green light given to Whole Foods and Wild Oats by anti-trust regulators has any positive implications for this transaction.
The Federal Communications Commission, or FCC, must approve the transfer to SIRIUS of control of XM and the subsidiaries of XM holding FCC licenses and authorizations, as well as the deemed transfer of FCC licenses and authorizations held by SIRIUS and its subsidiary to the combined company. In addition, XM and SIRIUS each filed notification and report forms with the Department of Justice (DoJ) in March.
Currently, there is not believed to be a procedural scheduled with the agencies but comments and objections were filed with the FCC as a response to a public notice in early July. SIRIUS and XM filed a joint reply on 24 July. It was said that a significant amount of economic analysis has already been made by the merging parties and that the companies will continue making other arguments as the merger progresses.
The process first requires input from the DoJ with respect to antitrust issues prior to an FCC ruling, it was said. Once that has been accomplished, the parties have to sit down and write a very detailed order as part of the FCC process. The DoJ does not have to write a very detailed explanation of their decision but the FCC does, which takes more time and which in turn has to be scheduled and voted on, it was said.
A SIRIUS spokesperson said, however, that the timeline for the merger has not changed from what the company has already publicly stated. According to an SEC proxy, the transaction is expected to close by the end of 2007 with a termination date for the transaction scheduled for 1 March 2008.
With respect to remedies, it is understood that none have yet been discussed and nothing is considered a surplus.
A number of arguments and market definitions are being proposed to the DoJ and FCC. In one of these, explained an antitrust attorney who is not representing the parties in this transaction, XM and SIRIUS are both claiming satellite radio cannot be separated into its own subset, and that the companies compete with traditional, commercial radio.
The parties are arguing that audio entertainment in the US is a very competitive and rapidly evolving market. Other outlets include the AM/FM radio broadcasting industry, HD Digital Radio Alliance, Internet radio and several of the largest wireless providers that currently offer radio-like services which deliver music to mobile phones.
Stephen Axinn, partner at Axinn, Veltrop & Harkrider, who is also independent of the transaction, outlined the argument proposed by SIRIUS CEO Mel Karmazin, who said iPods and MP3 players are similar competitors because a consumer can put on their headphones and listen to something they have programmed.
As a result, the parties claim the FCC should look at the broader market, where there is ample competition. The first antitrust attorney said certainly the DoJ would be looking at whether advertisers and consumers determine if satellite radio is different from other traditional forms of radio. “That will be a crucial argument and a crucial issue in the case of review for the DoJ to decide whether it is indeed a narrower market or broader market,” he said.
The challenge faced by the both companies as standalone entities, it was said, is the same as for any company in this space - to convince a sufficient number of potential consumers that they need or want its technology. It was said that there are 15 million people out of 300 million who have decided that satellite radio is something they find attractive, leaving 285 million who have yet to turn to this method. Therefore, the companies are arguing that there is a lot of room for potential growth.
The companies are arguing that by combining they can take the lower costs and better product and use it to do what they have been unable to do so far, which is to get enough subscribers to make a profit.
One argument to the advantage of the two parties merging is the ”a la carte” proposition, which is thought to be beneficial to the public interest and considered a sweet spot for the FCC, it was said. Under the proposition will be an option allowing subscribers to choose 50 channels for USD 6.99 - a 46% decrease from the current standard subscription rate of USD 12.95. A la carte programming will be available beginning within one year following the merger.
Meanwhile, the FCC has published a number of records indicating retailers seem to be leaning in favor of the transaction. Best Buy and Radio Shack are both on record as being in favor, along with several car companies that have come out in favor of the deal, it was said. The reason provided is that, with both XM and SIRIUS operating as two separate companies, retailers are not sure where the difference lies.
On the retail store front, the amount of shelf space that has been allocated to XM and Sirius has been shrinking over time, mainly because they have not been performing well relative to other products that the retailers have the option to sell. It was said this is the principal reason why the retailers are in favor of an XM/SIRIUS tie up, believing a single product will be a more effective seller.
Still, a number of media reports have suggested that a decision made by a US District Judge last Thursday to allow the USD 565m merger between Whole Foods and Wild Oats may pave the way for the XM/SIRIUS deal. The attorneys interviewed in this story, however, said they were skeptical.
It was said that the Whole Foods/Wild Oats merger might be analogous to the XM/SIRIUS merger but is not a determinant because the facts proposed by the supermarkets are different, the companies are in different industries, and the regulatory documents look different than those provided by XM and SIRIUS.
Yet, Axinn said he was sure SIRIUS and XM would try and argue that the court’s definition of markets in the Whole Foods/Wild Oats case indicated that a broader market was more appropriate than the narrow market the FTC is trying to draw in the case of Whole Foods.
The two radio service providers will try and prove that there are no antitrust problems here since the two separately have been fairly unsuccessful at the price points that they are at present, it was said.
dealReporter is an independent intelligence service geared towards a client base of hedge funds, proprietary trading desks, security lending and institutional fund managers providing extensive coverage of all aspects of M&A, private equity, special situations and rumors across the European, pan-American and Asia-Pacific markets.
dealReporter provides clients with articles such as the one above in real-time via personalized email and BlackBerry alerts and an online platform. For more information
please email firstname.lastname@example.org or call: Europe: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.