Deal delay may hurt Sirius, XM holiday sales

By Franklin Paul - Analysis

NEW YORK (Reuters) - It's barely spring, but Sirius Satellite Radio Inc's (SIRI.O: Quote, Profile, Research, Stock Buzz) unfinished merger with XM Satellite Radio Holdings Inc (XMSR.O: Quote, Profile, Research, Stock Buzz) may already be hurting their holiday-season subscriber push, possibly delaying some benefits of the deal deep into 2009.

Should Sirius's $3.5 billion all-stock acquisition be cleared by the Federal Communications Commission -- its last regulatory hurdle following the Department of Justice's approval last month -- the merged company would have to aggressively cut costs and integrate operations.

The speed and timing of a turnaround is key, since both companies typically score their biggest subscriber gains in the winter holiday season, when consumers buy the services as gifts.

But with no clear date for the FCC decision, integration plans that have been on hold for more than a year, since the deal was announced, could miss key milestones in 2008.

"No matter how quickly they get it done, if they miss this fourth quarter, they will miss one year of opportunity," said Rob Enderle, principal analyst for the Enderle Group. "So getting this cooked fast -- at least from the standpoint of the perception to the buyer -- would be critical."

For example, company staffers would need time to map out a plan for mass-producing a radio, at a manageable cost, that receives live content from both services. Sirius Chief Executive Mel Karmazin has said such a radio exists, but there have been few details on its consumer availability.

In the meantime, a combined company would need to prevent confusion among subscribers as it keeps two different services alive. Financially, Sirius would have to address refinancing some $1 billion in XM debt amid a U.S. credit crunch.

"Unless they do something superhuman, their biggest shot ... is late third quarter 2009 -- the back to school season. That's a long time to wait for ramp," Enderle said.