What If the Satellite-Radio Merger Dies?

Like terrestrial radio, there sure is a lot of annoying static during the proposed nuptials between Sirius (Nasdaq: SIRI  ) and XM (Nasdaq: XMSR  ) .

Shares of both companies were rocked yesterday afternoon after a pair of Congressmen sent a cautionary letter to Attorney General Michael Mukasey, urging patience in reviewing the monopolistic conflicts that may arise if the two satellite-radio providers are allowed to combine.

"We were dismayed to learn of recent press reports suggesting that Justice Department staff may be trying to rush through the merger before you have an opportunity to fully participate," Republican Steve Chabot and Democrat John Conyers wrote in a bipartisan note.

So the regulators are now rushing to judgment on this merger? Gee, and here I thought that taking nearly 10 months since the deal was originally announced without arriving at a conclusion was tantamount to dragging one's feet. I'd hate to think that the rest of the House of Representatives work at this feverishly slow pace. If taking nearly a year to make a single well-researched decision is the fare of Speedy Gonzalez, I can't imagine how individual legislative proposals ever get pushed through.

Beyond the egg timers
It can't be the pace that's troubling the two Congressmen. If the merger had been killed five months ago, they'd probably be happy as congressional clams. Could the fear here be that the Department of Justice may approve the deal after mulling over its ramifications?

That may seem odd, because Chabot is typically a pro-business Republican. Conyers hails from Michigan, where the state's bellwether automakers have come out in favor of the merger. The National Association of Broadcasters -- the voice of terrestrial radio that has lobbied against the merger -- even had to apologize to the FCC over the summer after characterizing both Conyers and Chabot as anti-merger proponents.

So what's going on here? Not much. The news may have been enough to shed 6% and 10% off the share prices of Sirius and XM, respectively, yesterday, when all that Chabot and Conyers are urging is for the regulators to take their time to get this right the first time.

If you're a Sirius or XM shareholder, time is actually your friend right now. Sure, every money-losing quarter that the two companies spend apart is one less period sans the realized savings. Deal with it. The payoff here is that every passing week makes it less and less ludicrous to think that XM and Sirius have a stranglehold on the premium radio experience.

Rock and crow
Since the deal was originally announced, both Microsoft (Nasdaq: MSFT  ) and Apple (Nasdaq: AAPL  ) have introduced enhanced models of their digital media players that more effectively substitute the satellite-radio experience. The ad-supported Slacker should hit the market early next year.

Another argument is that Napster (Nasdaq: NAPS  ) and RealNetworks (Nasdaq: RNWK  ) find their shares trading at roughly half of their 52-week highs. In other words, even without a merger, the digital-music landscape is so crowded that even pioneers are having a tough time staying relevant.

That argument leads to the best case I have read in favor of a deal. John Dvorak's column last week suggested that the companies be allowed to merge, because if they don't get together, one or the other is bound to go bankrupt eventually, creating the same one provider problem that deal critics fear.

That would be worse for consumers than simply allowing the merger to go through. At least now, the regulators have secured concessions that will keep prices in check, broaden programming choices, and even create lower-priced subscription tiers. It will be completely different if XM or Sirius goes Obit City, leaving the lone survivor to jack up prices as it slashes marketing and programming overhead.

It can't come to that. It won't come to that. So sit tight and watch this thing play through. Ignore the static and think like an investor. If the deal goes through, losses should turn into streams of positive cash flow. If the deal is killed, single out the eventual survivor and buy in, because there will be even chunkier margins to be had in that scenario.

So who will be the last satellite-radio provider standing? That's a question that even slow-footed congressmen can't even begin to answer.

Once you're off the soapbox, check out some of the more recent articles on the merger:


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