Thursday, March 08, 2007

Satellite Radio Congressional Tap Dance

Sirius Satellite Radio Inc. (NasdaqGS:SIRI) and XM Satellite Radio Inc. (NasdaqGS:XMSR) continue the congressional tap dance as they desperately attempt to secure approval for their desperate merger.

The executives are prepared to cut their financial throats and have put the sharp knife in place with this comment

"If our merger is approved, we will offer consumers a much more attractive choice -- the best of each service on one radio at a price well below the cost of the two services today," Sirius Chief Executive Mel Karmazin told a House telecommunications subcommittee hearing.”

When asked if the discount would be around $10 or $2, Karmazin said it "looks closer to 10 than to two."

That is a whole lot of cash flow that cannot possibly be recovered by cuts in operating costs and other synergistic nonsense that executives are hoping for.

The deal must be approved by both DOJ and FCC. The original licenses were issued by the FCC on the basis that the two entities will never merge. Consumer groups are screaming and the merger does not have any political capital. Politicians will not be re-elected because they support this deal.

A merged entity is not a guarantee of improved viability. The capital cost of satellites is huge and will continue to stay huge. Just check with NASA about discount space travel and listen to the exasperated silence.

One is reminded of a horse racing handicapping rule. When two fast horses are pitted against each other bet on the third good horse as the first two will burn out and will need very long periods of recovery.

This is dead money as the executives are lost in space without any idea as to how to return to profitability. Somehow I do not see any private equity swooping down to pick up the pieces.