Tuesday, May 8, 2007

Dissing Howard Stern: Bad Policy, Good Politics

When it comes to assessing stocks, CNBC's market-watcher Jim Cramer is pretty good. Recently when asked by a viewer about buying shares of Sirius Satellite Radio, Cramer was apprehensive, noting the proposed merger between Sirius and rival XM may not win regulatory approval.
Cramer's probably right. With every passing day, this deal looks more like a dead duck. Should it fail, we'll hear a lot of high-minded talk from regulators about how the proposed link-up threatened to become a monopoly that would overwhelm it's land-locked radio rivals. There will also be self-congratulatory blather about saving consumers from the threat of higher subscription rates.
But if this deal dies, I'll wager there will be another reason for not winning the U.S. stamp of approval. And that reason is Howard Stern.
This assertion is not based on inside knowledge of the decision-making process. Rather it is a gut feeling that when regulators sit down to discuss this merger, the Stern show is the elephant in the room. Killing the merger--which is basically a takeover of XM by Sirius--would prove to be a very public rapprochement of the controversial host and his free-wheeling,often randy, show that's heard daily on Sirius.
Such a decision may be crummy antitrust policy but it's good politics for the ailing Bush Administration.
Already this transaction, which was announced Feb. 20 and valued at a mere $13 billion, has had at least four congressional hearings. Mergers worth much more rarely get this level of legislative scrutiny. Indeed, Alcoa this week made a $33 billion bid to acquire Canadian competitor Alcan and antitrust experts already predict the deal will be approved.
But the Sirius-XM hearings give lawmakers a forum to rant against the type of uninhibited content that satellite radio, and especially the Stern show, showcase.
Yes I know that Congress doesn't approve merger agreements, but it has a lot of sway with regulators, who do make the call. Anyone who thinks that members of the Federal Communications Commission and Justice Department, which will rule on the Sirius-XM merger, are turning a deaf ear to this ruckus is dreaming.
I suspect that within the bowels of the executive branch this deal has a bull's eye on it. While Stern is best known for his ribald banter, he is also an outspoken critic of President George Bush and the War in Iraq, denouncing the commander-in-chief's actions when other prominent broadcast personalities were silent or supportive. He openly backed Democrat John Kerry in the last presidential election.
I doubt the tough-edged Bush Administration, which rewards loyalists and punishes enemies to a degree unseen in modern politics, is going to forgive and forget. Not while Bush's main man, Attorney General Alberto R. Gonzales, is running the Justice Department.
And then there's the issue of timing. In light of the Don Imus controversy, shock jocks are not the nation's favorite people right now. Imus and Stern are two very different types of entertainers, but they are being thrown into the same grab-bag. The Bush Administration can rack up some needed brownie points with its core constituency by slapping down an agreement that would ultimately profit Stern and expand his reach.
That's called pay back, baby.
Supporters of the Sirius-XM merger say their industry competes with every form of media, ranging from terrestrial radio stations to the Internet. They're right. We're in the midst of a personal communications revolution and to overrule this merger because it produces one strong player in the satellite radio space falls to grasp that reality.
Yet, since this approval process began, Sirius and XM management have been playing defense. In Washington D.C., they are getting slapped around by the merger's opponents--who have used their public relations, marketing and political might to make the case that the Sirius-XM merger will result in monopoly.
However, approval of this deal won't only rest on antitrust precedents. Radio content will also be a factor and that shifts focus to the Stern show.
CNBC's Cramer said Sirius stock is worth $6 a share, provided the merger happens. It may be worth less than $2 a share if the XM deal falls apart. Wall Street is backing off--Sirius stock has slipped from nearly $4 per share in January to yesterday's close of $2.89.
Perhaps investors are issuing a Stern warning that this merger will not happen.


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