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Optimism Grows For Sirius/XM Merger

10/24/2007 12:12:00 PM Eastern

New York — Optimism that the hotly debated merger of Sirius Satellite Radio and XM Satellite Radio will win federal approval is on the rise, according to several Wall Street analysts who predict the deal will close before the end of the year.

Despite a recent motion by the National Association of Broadcasters (NAB) to the Federal Communications Commission (FCC) to stop deliberations on the merger, at least two analysts said the deal retains close to a 70 percent chance of approval by the FCC and Department of Justice (DOJ).

On Oct. 17, Cowen and Co. issued a report stating it believed the merger will be approved in three to six weeks by the DOJ and shortly after by the FCC.

A week earlier, the NAB petitioned the FCC to halt its review process (“time clock”) to grant the NAB time to review information it received about XM and Sirius receivers and/or repeaters that may be in violation of FCC regulations.

The NAB cited a news report claiming up to a third of XM’s antennae were in unapproved locations or emitted signals that were too strong. And Sirius receivers exceeded FCC interference levels, the NAB said.

Wall Street seemed unfazed, with Bear Stearns reporting a week later that, “The Street appears to be increasingly coming around to our view that the merger is likely to muster approval of both the DOJ and the FCC…”

Analyst Tom Watts of Cowen called the NAB action another effort to derail satellite radio. “The NAB has been very consistent since 1989 at using every legal mechanism available to block the success of satellite radio. This is one more step,” he said, claiming he continues to give the merger a 70 percent chance of winning approval.

The day after the NAB petition was filed, Citi Investments issued a report stating the merger has a chance of passing federal regulation “in the high 60-percent” range and that it would create a cost savings to XM and Sirius of $7 billion. 

Citi Investments analyst Eileen Furukawa stated in a report, “We believe the probability of getting regulatory approval has shifted recently in favor of Sirius and XM … We believe that the commentary during the Federal Communications Commission open period was more persuasively in favor of XM/[Sirius] … at the same time, we believe XM/[Sirius’] offering of a la carte pricing including a Family Friendly package, should help to appease FCC regulators.”

The Citi report said, however, that government approval is still uncertain as it “will be strongly politically fueled, particularly as we move toward a presidential election year.”

Regarding the FCC response to the NAB motion, an FCC spokesman said only it would become “part of the public record” as other documents filed with the Commission.

XM and Sirius said they plan on filing a response to the NAB motion before Oct. 24. A spokesman for both satellite radio companies said that the FCC “does not have any time period in which it must respond [to the NAB motion], it is wholly discretionary. It could issue a brief stand-alone response to the request or ignore the request and fold a response into the final merger order. They haven't tipped their hand to us as to how they will play this one.”

XM and Sirius also claimed, “The NAB's allegations are unfounded and their recent filing is just an attempt to stall the process. We look forward to continuing to work with the FCC and are confident they will weigh the transaction on its merits, recognize that it is in the public interest and approve the merger by the end of the year."

The FCC has indicated it hopes to rule on the merger by early December. Its role is to decide if the merger is in the public interest. The DOJ must also decide if the merger would be anticompetitive. It has not said when it will issue a decision.

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