Both the Wall Street Journal and The New York Times have published articles discussing the impact of a proposed merger between XM and Sirius Satellite Radio that was announced last week. I posted about a possible merger back in November but the official announcement came last week. The New York Times has reported that the deal would end up with Sirius paying a premium to XM Satellite Radio shareholders. Why would Sirius pay a premium when in most mergers of equals there is rarely a premium paid? Well as the New York Time explains:
Things become clearer, though, when you look beyond the numbers and consider the psychology behind the deal. Because of the possibility that Washington could block the transaction, Mr. Karmazin said that nobody wants to look like the loser if things go bad. “You want to make sure if it doesn‚Äôt happen, no harm, no foul,” he said.
So although a merger has been announced, there is going to be some major regulatory hurdles for both companies. Since XM and Sirius are the only competitors in the satellite radio industry it will be extremely difficult for the deal to get approved considering the merger will create a monopoly. The only chance for approval is based on the fact that competitors to satellite have begun to and will continue to emerge. Additionally, Mel Karmazin believes that the deal “can be rushed through the regulatory maze while the Bush administration is still in power.” It will be interesting to see how this ends.