Antitrust action bad news for XM/Sirius


The Federal Trade Commission has gone to federal court in an effort to block the proposed merger of Whole Foods and Wild Oats Market, two grocery chains specializing in organic and specialty foods. What does that have to do with satellite radio? Goldman Sachs analyst Mark Wienkes says the FTC move is a negative for the proposed XM-Sirius merger because it "focused on the format and the consumer base rather than the product category."

While the two grocery chains claimed only about 15% of the total natural foods market, about 70% of their revenues came from overlapping markets. For XM and Sirius, of course, 100% of their revenues come from overlapping markets. "In our view, applying a similarly narrow focus on the XM/Sirius merger (i.e. distinct satellite radio market, vs. a broader audio entertainment market) would likely result in a similar action from the DOJ, i.e. deal rejection," Wienkes said in a note to investors.

RBR observation: We've said all along that the Antitrust Division of the Department of Justice was a bigger hurdle to the XM-Sirius merger than the FCC. Although it was the FTC in this case (the two agencies split antitrust responsibilities), the guidelines that it and DOJ follow for merger analysis are the same. It doesn't seem likely that the DOJ is going to depart dramatically from past precedent and approve the merger of the only two companies that exist in an industry, no matter how much current or potential competition they face from companies in other businesses that are sort of, but not quite, more or less trying to go after the same listeners and/or advertisers.