XM + Sirius = Xirius?

By HoosAdvantage: Kara Ivy Goldberg, Thomas K.M. Li, Wei (Grace) Song, , Cheung Fai Yeung

The potential future marriage of Sirius and XM would bring together the nation’s only two satellite radio services and this proposed horizontal merger has ignited heavy debate on either side of the issue. However, a union between the two competing firms must first gain approval from the Federal Communications Commission (FCC) as well as the Justice Department. Much attention will be devoted to whether or not the deal violates antitrust laws and the company’s pricing structure will be a big focus of the Justice Department’s review. Both companies currently compete in Cournot equilibrium, and charge their subscribers $12.95 a month. When discussing the future of their merger, neither party would comment directly on whether the combined company would seek to raise prices.

With approximately 6 million subscribers, Sirius is most well known for being the home of shock jock Howard Stern, Martha Stewart, and National Football League games. By the end of last year, the larger XM service closed their books with about 7.6 million subscribers and it airs the popular Opie and Anthony show, Oprah Winfrey, Bob Dylan, and Major League Baseball Games.

Sirius Satellite Radio CEO Mel Karmazin and the XM chairman, Gary Parsons, presented analysts with one of their main arguments to support the merger. They argued that along with satellite radio, all forms of mobile entertainment - including digital music players like Apple’s iPod and music-playing cell phones - will comprise the true market that the future merged company will face.

Given the strong antitrust concerns, many analysts are doubtful that the deal will be approved by the Justice Department. FCC chairman, Kevin Martin, has expressed his strong support of the current FCC rules that prohibit a union between the two companies. In an interview, one antitrust lawyer called the chances of regulatory approval a ‘long shot.’ Furthermore, numerous sources in Washington have hinted that the chances of gaining approval for the deal by the first quarter of 2008 are less than 50 %.

The future of satellite radio is becoming the focus of much concern and the stakes are high. A horizontal merger between Sirius and XM runs the risk of hurting consumers with the possibility of a significant price increase for future subscribers. However, the battle to merge will be tough insomuch as terrestrial radio will fight to block it, Kevin Martin will fight to block it, digital music players will fight to block it. And logic should block it.

Source: http://money.cnn.com/2007/02/20/news/companies/xmsirius_reaction/index.htm?postversion=2007022010

Bidding Wars Beyond the Scope of eBay

With news of a possible merger between British bank Barclays and Netherlands’ largest bank, ABN Amro Holding, a frantic and deeply expensive bidding war has started amongst some of the most prominent banks in Europe. In a statement made by ABN officials, there has been “exclusive preliminary discussion with Barclays concerning a potential combination of the two organizations.” This merger, which would make the combined bank worth more than $166 billion dollars, has resulted in analysts predicting that Citigroup, HSBC, and the Royal Bank of Scotland and Santander will be prepared to make counteroffers to ABN within the weeks to come.

The two banking companies, although operating in the same industry, have relatively limited overlap in terms of geographical location. ABN would give Barclays a retail credit card presence as well as their business of financing acquisitions; and more importantly, the company would spread its influence beyond that of Europe - expanding into the lesser invested Asian and African markets.

With the recent successes of similar bank mergers between Bank of America/Fleet/MBNA, rumors of a possible merge have resulted in significant increases in stock values for ABN. The merger would produce extensive cost savings in terms of competitive advertising and marketing, while at the same time promoting widespread familiarity with the company name throughout Europe and Asia and increased corporate profits. Analysts have stated that the acquisition of ABN would essentially be a plus for any large European bank, so it all boils down to who’s willing to dump out the big bucks. If only ABN had a Buy-It-Now option, all of this unnecessarily scrupulous “economic analysis” could be avoided!

-Seon Hwang, Kristy Choi, Minsoo Park, Chris Liu

Toyota has Camry, Honda has Accord, Ford has Focus… What does General Motors have again???

General Motors itself is not a brand name for a car and yet, it is one of the largest auto manufacturers in the world. How did this come to pass? The Deal Maker expands how William C. Durant built GM in the early 1900s through both horizontal and vertical mergers, often associated with individuals whose names remain as their legacy, such as Ransom Olds (Oldsmobile), David Dunbar Buick, Louie Chevrolet, and Albert Champion (Champion spark plugs). Thus, Durant kept the different models of the merged companies to appeal to different markets. Such product differentiation became the key to GM’s success, especially in the mid 1920s.

The irony is that Durant never successfully integrated the firm to achieve cost savings. He bought up competitors simply to gain a dominant market share and thus realize high profits through pricing closer to monopoly price than competitive price. This lack of efficiency allowed their main competitor, Ford, to move ahead.

Ford Motor Company, under Henry Ford, emerged and stayed independent at this time, dominating the market from around 1917-1926. Ford’s Model T, basically its only model, was sold at a much lower price than any of GMs’ cars due to low costs yet relatively high quality.

Thus, Ford’s price competition initially dominated the market but its complacency with a single successful model ultimately hurt it as the automobile market grew at such a rapid pace and consumer tastes shifted towards more varied models such as GM offered. This was eventually remedied as Ford is now the home to several brand names such as Lincoln, Mercury, and Jaguar, some of which were acquired through horizontal mergers. As most know, both GM and Ford have been surpassed by Toyota in the recent past, partially due to another change in consumer preferences towards high fuel efficiency. Who knows what kind of product differentiation will next take the lead in this dynamic industry…

Found this post interesting? Then take HIUS 341 US Business History!

By Jim Baltz, Wooi Yang Chang, and Brian Gavron