XM and Sirius Merger One Step Closer to Approval

After months of negotiations and arguments from many, the U.S. Department of Justice has approved the merger of XM (XMSR) and Sirius (SIRI) satellite radio companies, creating a single satellite radio company. Both of their stock prices rose significantly, 15+ percent and 8+ percent respectively.

"We just simply found the evidence did not support a challenge to the transaction under the antitrust laws," said Thomas Barnett, the Justice Department's antitrust Chief, according to Bloomberg. The Justice Department essentially decided that the new company would not be able to significantly raise prices on satellite radio because of other existing competition such as MP3 players and broadcast radio. Sirius and XM made offers to the Justice Department to help get the deal approved. The two companies offered package programming at different rates which could lessen the current subscription of $12.95 to $6.99 through a tiered pricing plan.

It is important to understand the merger is still not a done deal. XM and Sirius still must wait for the Federal Communications Commission to approve the merger. Senator Herb Kohl, a Wisconsin Democrat said, according to Bloomberg, "We are very disappointed, [the deal] will create a satellite monopoly." The FCC now needs to decide whether the merger is in the "best public interest", and if so, overturn or enforce the 1997 order barring the two satellite companies from acquiring each other. FCC Chairman Kevin Martin stated on Thursday that it would probably not be ruled upon before the end of March.

The Justice Department spokesman denied the result would be a monopoly because of the wide range of audio entertainment options for the individual customer. XM radio currently features Major League Baseball and Oprah Winfrey. Sirius features Howard Stern and NASCAR. People have to this date purchased one or the other because of programming desired, not pricing. The merger will now allow a combination of programming, making a better satellite radio product for customers.

96 Percent of the shareholders of both companies approved the merger in separate meetings on November 13, 2008 (Wall Street Pit.com). Jim Cramer of CNBC's "Mad Money" was delighted about the announcement, although mentioned his disappointment in the length of time it is taking to make these decisions. Jim Cramer said he thought that Sirius (SIRI) would rise to $5.00/share if the FCC approves the merger.

I believe that the FCC will approve the merger, eventually. I would not recommend buying Sirius (SIRI) just yet. My intentions are to wait until this initial surge after the Department of Justice approval. After the stock pulls back again (2.90-3.00), then begin to purchase the stock in anticipation of the merger.