Bear Stearns Analysts Favor Sirius-XM Merger

The proposed merger of Sirius Satellite Radio and XM Satellite Radio is likely to pass “on merits” unless political pressures hold sway against federal regulators, Bear Stearns said in a July 16 analyst report.

The merger must be approved by the U.S. Federal Communications Commission and the Department of Justice, and the government has been lobbied heavily by both proponents and opponents of the merger. Many consumer interest groups have weighed in, and in June 72 members of the House of Representatives signed a letter opposing the proposed merger.

Bear Stearns, however, found “no significant issues” raised during the FCC’s call for public comment that had not been addressed in congressional hearings or during the FCC process. The analysts also expect Sirius and XM to provide more details on proposals such as a la carte services, price guarantees and reduced pricing for basic packages that would help their case, the analysts said.

“After attending several congressional hearings, reviewing recent FCC filings, speaking with various legal and political contacts, and working through the merits of the merger proposal, we believe the proposed merger is likely to pass regulatory hurdles with appropriate concessions,” the analysts said. “We underscore, though, if political forces are more powerful than the merits of the deal, the outcome may be different. However, our sense is that the deal will be judged on merits and is therefore likely to pass. Our opinion is in fact a vote of confidence in the FCC and [Department of Justice], who we believe will base their decisions on what’s best for consumers and the American public.”

The merger could be disapproved based on the FCC’s rule that prohibits a single company from holding both satellite radio licenses. The FCC issued a call for comment in June about whether that 1997 prohibition against the companies’ combining should be waived, modified or repealed.

A former bidder for the satellite radio licenses, Primosphere, also could play a role, proposing that the Sirius-XM merger be approved if one of the licenses was then awarded to Primosphere, and Sirius and XM were required to open their satellite network for Primosphere to deliver content to its subscribers in the interim.

“Primosphere raises an interesting argument; however, we do not believe XM and Sirius will agree to the merger if they
are limited to one spectrum,” Bear Stearns said.