Posted by: Olga Kharif on July 21, 2008
So, is the XM-Sirius merger going to happen or not?
Today’s Motley Fool headline screams, “Just Walk Away, Sirius.” The story suggests that Sirius should walk away from its merger deal with XM rather than accept additional concessions posed by the Federal Communications Commission. Well, I disagree.
First off, the satellite radio companies have already come too far to back out of the merger now. They’ve held off on marketing. They’ve refinanced their debt with the expectation that they will merge.
Second, the additional concessions the companies have been asked to make aren’t as serious as they appear. So what if XM-Sirius can’t raise its prices for six years? Chances are, the companies wouldn’t increase them anyway; prices for services such as broadband and wireless trend down, not up. Why should the satellite radio industry act differently, especially in this economy, when people can’t afford even its current price?
Next, let's look at the other new requirement, that the two companies allocate 25% of their channels for public-interest programming, up from 8% agreed-upon previously. It's not as big a deal as it appears. Here's why: When the two companies combine, they'll find that they replicate about 50% of each other's programming, according to one expert I've talked to. That means that XM-Sirius could, potentially, vacate as much as 50% of its capacity for new channels. Why can't broadcasts from the likes of NPR take up some of that space?
The bottom line: I would expect the two companies to take the deal, even with the new, stringent conditions.