They're picking curtains, not coffin drapes. They're looking at honeymoon brochures instead of divorce papers. The courtship between Sirius (Nasdaq: SIRI ) and XM (Nasdaq: XMSR ) has been a long and bumpy one, but straight paths to the altar are rare when the vows involve clearing regulatory hurdles.
It's been nearly seven months since XM and Sirius announced plans to merge. It seemed like a preposterous proposal at first. Satellite radio is a duopoly aspiring to become a monopoly. The precedents weren't kind. When the two satellite TV providers tried to get hitched five years ago, they were shot down by the FCC.
However, things are different this time. Even graying regulators are beginning to see that the marketplace is evolving with every passing digital audio introduction. After all, you can't be a monopoly when you're competing against a growing list of ear magnets. You can't be accused of hurting consumers when both companies have spelled out lower-priced plans that will be available within a year of the "I do" swaps.
Most importantly, even Mr. Market appears to be rushing out to get fitted for a tux for the eventual soiree.
A tale of two stock charts
Wall Street has ignored XM and Sirius since their initial premarital bliss. Despite healthy subscriber growth at both companies, each stock is trading for less than it did the day before the merger was announced.
Optimism is making a welcome return, though. Last week may have been a loser for equities in general, but XM and Sirius made the most of the abridged trading week. XM's stock closed 8.3% higher, while Sirius was privy to a 6.4% gain.
Why the sudden thaw? Former FCC commissioner Mark Fowler threw his support behind the deal with a letter printed in the New York Sun on Wednesday. He singled out emerging technologies like HD Radio, Internet radio, Apple's (Nasdaq: AAPL ) iPod, and mobile phones as playing-field levelers.
He's right. I've been saying that for months. Unfortunately, the key word there is "former" FCC commissioner. Current regulators have their ears full these days, and not just with a set of high-end earbuds.
Battle of the bands at AM and FM
Terrestrial radio doesn't want XM and Sirius to merge. Old-school players see a combined satellite-radio competitor as a bigger programming threat and less of a fiscal bleeder. They're making sure that their dissent is voiced, although they're obviously not the only ones lobbying. XM and Sirius spent a combined $810,000 through the first six months of the year to lobby for the deal's approval.
The National Association of Broadcasters (NAB) doesn't have a firm footing, though. In throwing its support against the merger back in February, it argued that a merger "will impose higher prices, less diversity, and equipment costs on subscribers." Two months later, it took out an ad in a couple of industry trade periodicals that essentially said the same thing.
XM and Sirius have shot down those fears. In a cynic-popping move, the satellite radio upstarts committed to lower-priced tiers -- as low as $6.99 a month -- while assuring existing subscribers that their existing receivers and content expectations would not change.
It wasn't a genuine shot to begin with by the terrestrial radio-backed NAB. In theory, AM and FM broadcasters would be cheering for higher prices, less diversity, and additional hardware outlays. Those moves would send many of the roughly 15 million satellite radio subscribers back to listening to commercial radio.
It's no surprise to see that the NAB isn't exactly elated by having its concerns addressed. It has simply moved on to the original argument -- that a merger would violate the language that created the duopoly in the first place.
The printer needs a date for the invitations
The antimerger sentiment is weakening, but the nuptials aren't simply a ceremony away. RBC Capital analyst David Bank issued a note last week, suggesting that the deal now has a better-than-50% chance of approval within the next month or two. It sent the shares rallying, although "greater than 50%" is still a far cry from 100%.
Combine that with last month's approval of Whole Foods Market (Nasdaq: WFMI ) snapping up its largest competitor, and the regulator blessing appears to make sense. Comparing Whole Foods to XM-Sirius may be like pitting apples against oranges, but it's a show of faith that the Department of Justice is a little open-minded in what it interprets as sector-suppressing moves.
Clearly XM and Sirius aren't the only premium radio providers these days. Have you seen a wireless-provider ad that didn't pitch its digital music offerings? Music subscription services like Napster (Nasdaq: NAPS ) and RealNetworks' (Nasdaq: RNWK ) Rhapsody continue to grow in popularity, even as Apple concocts new ways to make sure it stays your top choice for digital music consumption.
"Note to the FTC: Get out more" reads a scathing Chicago Tribune editorial last week. The regulatory forces holding up this merger certainly appear to be doing just that. The fact that this deal has been in limbo since February without being shot down -- giving XM and Sirius more time to let logic, time, and convergence speak louder than their own words -- is reason alone to come dressed for its approval.
What will you wear to the wedding?
Other things to read before the invitation arrives: