It’s about time: The U.S. Department of Justice has approved Sirius Satellite Radio’s (SIRI) merger with rival XM Satellite Radio (XMSR). Next up, the FCC, which must approve the deal before it closes — and could put some conditions on the merger. From the release:
After a careful and thorough review of the proposed transaction, the Division concluded that the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition, and that the transaction therefore is not likely to harm consumers.
Why not? There’s enough competition out there to prevent the satellite radio companies from jacking up prices unreasonably. Key points:
- Once someone signs up for satellite radio service, the companies don’t really compete with each other. “Although the firms in the past competed to attract new subscribers, there has never been significant competition between them for customers who have already subscribed to one or the other service and purchased the requisite equipment.”
- The companies compete with many other options for audio entertainment, like traditional radio, HD radio, Apple’s (AAPL) iPods, and audio services via mobile phones. Because of this competition, it’s unlikely Sirius and XM, if combined, could raise prices profitably.
- Merger synergies — like combined development, production, distribution costs — could create “substantial” cost savings that could get passed on to consumers.
- New technology platforms — like wireless networks serving up streaming Internet radio — will only offer more alternatives to satellite radio, not fewer.
Sirius stock is up around 5%, after spiking up 14%, XM’s up around 13%, after spiking up 19%.
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