Martin dampens XM, Sirius merger hopes
Wed Jan 17, 2007 5:19 PM ET
WASHINGTON, Jan 17 (Reuters) – U.S. Federal Communications Commission Chairman Kevin Martin said on Wednesday licenses held by XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. prevent them from combining, but one industry expert said the licenses could be modified. “There’s a prohibition on one entity owning both of those licenses,” Martin told reporters during a news conference after an agency meeting. But he also said the FCC would examine any transaction submitted to it.
Wall Street analysts have speculated about a possible combination of the two providers and their stocks have risen sharply in recent weeks. But after Martin’s comments, XM shares fell almost 10 percent, or $1.69, to close at $15.45 on Nasdaq, while Sirius shares dropped 7 percent, or 29 cents, to $3.86. Both Sirius and XM are growing rapidly, but losing money as they try to improve technology and pay for top entertainment ranging from the largest U.S. sports leagues to media celebrities such as Howard Stern, Oprah Winfrey and Martha Stewart.
XM and Sirius could ask the FCC to modify their licenses to permit a combination, according to David Kaut, an analyst at Stifel, Nicolaus & Co. “If the FCC wants to permit (the merger), based on the totality of their public-interest analysis, they would lift the prohibition,” Kaut said. “If they don’t want to approve, they’d probably keep the rule.” In addition to FCC approval, the companies would have to obtain the green light from U.S. antitrust authorities. Stifel, Nicolaus said in a research note to clients that, if the companies submitted a proposed deal to the FCC, the agency would likely review whether competitive conditions had changed over the last 10 years from when the licenses were issued. If the FCC construed the market to only include satellite radio, the government would likely block it, the research firm said.
If the government viewed the market more broadly to include alternative sources of mobile entertainment such as iPods and Internet programming over wireless services, the government would likely approve with some conditions, the analysts said. “We believe that the FCC … would be likely to seek conditions to an approval, perhaps including pricing terms, local programming and advertising restrictions to appease the broadcast industry and actions aimed at reducing or cordoning off indecent programming,” the analysts said. A spokesman for XM declined to comment, while a representative for Sirius was not immediately available for comment. (Additional reporting by Jeremy Pelofsky)
