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Sirius-XM Merger: Costly Static

Satellite radio chiefs Mel Karmazin and Gary Parsons, dealing with loud opposition from the NAB, talk about their expensive proposed hookup

Mel Karmazin has stopped by BusinessWeek's offices for lunch, but he's not eating much. He ignores the salad and picks at the chicken. He's too busy explaining why the proposed combination of Sirius Satellite Radio (SIRI), where he is chief executive, and XM Satellite Radio (XMSR) isn't your typical merger. In most deals, he says, it's the investment bankers who make the most in fees, then the accountants, and finally the lawyers. "In this merger, lawyers will make more money than the bankers," he says, prompting a round of chuckles. "It's easy for you to laugh. You don't see me laughing."

Karmazin and Gary Parsons, the chairman of XM, are trying to push through the merger they announced in February (BusinessWeek, 2/21/07) in a bid to unify the two satellite radio companies with a combined total of 15 million subscribers.

But they've encountered fierce opposition, especially from the National Assn. of Broadcasters, the group that represents traditional radio and television stations across the country. The NAB has fought to block the merger by arguing that a "state-sanctioned" monopoly would be bad for consumers and would harm local radio stations nationwide. "The downsides of a government-sanctioned monopoly are clear," said David Rehr, president and chief executive of the NAB in testimony before Congress earlier this year. "Monopolists have the ability to raise prices and discriminate."

Expensive Battle

Karmazin and Parsons say they still expect their deal to go through. But they've been a bit surprised by the ferocity of the opposition, leading to high-profile coverage in The New York Times (NYT) and other newspapers as well as congressional inquiries. Karmazin points out that when AT&T (T) acquired BellSouth for more than $80 billion, there were no congressional hearings. "We've done four congressional hearings," he says, "on two companies that have never made a dime." Says Parsons: "I was a little bit surprised at how many dollars they were throwing at it—and how many studies and how many politicians and lobbyists and things."

XM and Sirius are spending plenty to make sure the deal is completed. In disclosures filed recently, Sirius said it had spent $650,000 on lobbyists in the first half of the year, while XM said it had spent $580,000. The two have lined up a who's who of Washington insiders. They've hired a total of 13 lobbying firms this year, with Palmetto Group pulling in the most money from XM, at $70,000, and Wiley Rein taking in the most from Sirius, at $420,000. The other moneymakers range from Mehlman Capitol Strategies, run by former Republican National Committee Chairman Ken Mehlman, to Quinn Gillespie & Associates, led by Jack Quinn, onetime chief of staff to former Vice-President Al Gore.

The two companies still haven't come close to keeping pace with the NAB. The association spent $4.3 million in the first half of the year. It used 10 firms itself, led by the Ashcroft Group, headed by former Attorney General John Ashcroft. The opposition has generated letters from people like Senator Sam Brownback (R

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