Bear Stearns Comments on Proposed Sat Radio Merger

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Bear Stearns Comments on Proposed Sat Radio Merger

Jun 5, 2007 9:55 AM

New York - Jun 1, 2007 - In a stock trading report on Sirius Satellite Radio, Bear Stearns included some comments on the proposed satellite radio merger. The comments are not necessarily a part of the investment report, but the company is addressing many questions about the merger and its potential effects on the investment.

Bear Sterns states that it believes that the merger still has the potential to pass for three reasons. First, it states that there is little Washington opposition to merger. It cites the example of the attempted Echostar/Hughes (Directv) in 2002 that was surrounded by negative sentiment. Bear Sterns says that this is not the case from speaking with its contacts. The report states, "Besides the NAB's overt funding of 'independent reports,' the negative outcry has been tame by comparison. We think the public would see much more negative press by interested parties if the level of negativity were the same as the DBS merger proposal."

It's second reason says that Wall Street doesn't give enough credit to the DOJ and Congress. Bear Sterns contacts indicate that they are keenly aware of the NAB's maneuverings, and that "the NAB 'doth protest too much,' and may be hurting its own agenda on satellite radio further."

The third reason given is that the FCC is simply waiting at this point instead of asking for public comment on the merger, which would trigger the 180-day clock on the subject. According to Bear Sterns, "We think that if the FCC were out to kill the deal from the start that they would have already started the clock. We believe the tie up is the statement in the original license that stipulated one entity could not own both licenses." The investment consultant forecasts three ways that the FCC could handle the matter.
1. Waive the Requirement that one entity could not own both licenses. Bear Sterns believes that this would expose the FCC to a lawsuit.
2. Review the Requirement -- Expedited Process. The FCC could open for public commentary the requirement and rule on it along with the merger.
3. Review the Requirement -- Long Process. Similar to option 2, but could take up to two or three years to complete. Bear Sterns believes that this would be a difficult choice for the FCC because it would "effectively kill the deal before any DOJ ruling." The consultant expects that Sirius and XM would walk away and potentially sue if this option were taken.

Bear Sterns believes that the second possibility is the most likely, and if the Dept. of Justice approves the merger, that the FCC will allow the merger but include certain restrictions.