An Uphill Climb for XM-Sirius Merger

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Naysayers Unite

If the deal falls through, few players would be happier than the National Association of Broadcasters. The trade group has already sponsored two studies critical of the deal. Both were released in April. One is by Philip Napoli, director of the Donald McGannon Communication Research Center at Fordham University, and the other came from The Carmel Group, a consulting firm. "America can't let Mel Karmazin sell it [on] 'less is more,'" the Carmel report said.

Findings of a sponsored study may be suspect, of course, but XM and Sirius have been criticized for not firing back swift rebuttals. The NAB also has retained former Federal Trade Commission Chairman James Miller, who recently authored and sent a letter in opposition to the proposed merger to members of Congress. "They've been a lot more successful in rallying their forces," says Richard Doherty, director at consultancy the Envisioneering Group, about the NAB.

Adding to the roadblocks, analysts are casting doubt on the projected cost savings the merger would yield. In an Apr. 26 report, Bank of America (BAC) analyst Jonathan Jacoby said he believes that if the deal goes through, the combined company will have to pay higher programming fees to broadcast their baseball and football programs. As a result, Bank of America recently trimmed its forecast of anticipated savings to $3.6 billion, from $5 billion.

Still a Long Way to Go

To be sure, there's plenty of time to win over skeptics, be they shareholders, legislators, or regulators. Sirius and XM have said from the start their union wouldn't stifle competition. Karmazin himself has said he'll take the steps needed to ensure the deal wins approval (see BusinessWeek.com, 3/1/07, "XM-Sirius Grilled on the Hill").

The companies are likely to file more extensive reports outlining their stance in the coming weeks, while the FCC solicits input from the public. The Justice Dept. isn't expected to make its decision until late summer or early fall. FCC approval could take even longer. "We continue to believe we will ultimately receive the necessary approvals," Hugh Panero, chief executive officer of XM, said during a conference call Apr. 26.

If only Wall Street shared his optimism.

Kharif is a reporter for BusinessWeek.com in Portland, Ore.