The dormant, yet important, proposed $5 billion merger of Sirius Satellite Radio Inc. (SIRI) and XM Satellite Radio Holdings Inc. (XMSR) cleared a major hurdle, as Federal Communication Commission Chairman Kevin Martin backed the merger - with stipulations.

Concessions Martin recommended include: the stations turn over 24 channels to noncommercial and minority programming as well as a three-year freeze on prices and packages. Both satellite stations have already accepted Martin’s conditions.

“As I’ve indicated before, this is an unusual situation,” Martin said in a statement. “I am recommending that with the voluntary commitments they (the companies) have offered, on balance, this transaction would be in the public interest.”

Martin said Monday that he would propose the FCC approve of the conditional merger. Reuters reported that the proposal could be as early as this week, citing sources at the FCC. At least two more of the four remaining FCC commissioners need to approve of the merger for it to pass, and it’s possible they may add more stipulations.

Nevertheless, the news gave shares of both satellite radio brands a spike in pre-market trading this morning. By mid-morning, Sirius was up 4.72% and XM was up 5.06%.

In March, the Department of Justice approved of the Sirius-XM merger, saying it would not violate anti-trust laws because the satellite radio providers face competition from AM and FM broadcasters, television, mobile phones and online music stores and radio stations.

That didn’t bode well for members of National Association of Broadcasters - including billion-dollar media titans Hearst-Argyle Television Inc. (HTV), Gannett Co. Inc. (GCI) and Belo Corp. (BLC) - one of the most powerful lobbies in the world and ardent opponent of the merger.

“We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade. To hinge approval of this monopoly on XM and Sirius’s refusal to deliver on a promise of interoperable radios is nothing short of breathtaking,” The National Association of Broadcasters said in a March statement.

Should you buy?

Though shares spiked in hopes the merger will go through, the cons still outweigh the pros, said Lou Basenese, an M&A expert and editor of investment newsletters The Hot IPO Trader and The Takeover Trader.

Together, the companies boast more than 15 million subscribers, but both have lost money since they started. They hope the merger will save operating costs.

“Don’t buy either stock, even if they finally get FCC clearance. Ultimately, share prices follow earnings. And neither of these companies have any. Combining won’t change that fact,” said Basenese, who has been following the Sirius-XM merger from the beginning.

Moreover, while the premium content of each satellite radio provider is worth its suggested new price (from $6.99 a month to $16.99 a month depending on the package), a merger would combine the debts each station paid to have content from the likes of Howard Stern and Oprah Winfrey.

“Both companies overspent to acquire content in a bid to expand subscribership as fast as possible - a fatal mistake that will make sustained profitability (as independent or combined companies) impossible for years to come,” Basenese said.

Mike Caggeso
Money Morning