CONTINENTAL DECLINES UNITED MERGER OVERTURES

Continental Airlines has declined an option to merge with United.

From USA Today:

Continental Airlines' directors on Sunday opted to stick with a go-it-alone strategy at least for now, rejecting merger overtures from United Airlines to create an even larger carrier than the one that would result from the pending merger of Delta and Northwest.

Continental CEO Larry Kellner, in a message to employees late Sunday afternoon, said the airline's board followed management's recommendation in rejecting a merger path.

Talk of consolidation has swept across the U.S. airline industry since Delta and Northwest went public with their merger talks in January. That pair announced a merger agreement on April 14.

Kellner made it clear in his comments that Continental's management believes that it is stronger as an independent company than it would be if it merged.

MERGERS AND HIGH FUEL COSTS MAY MEAN FEWER CHEAP FLIGHTS

With Delta and Northwest seeking approval on a merger and rumors swirling about Continental seeking a merger partner in both United and American, competition in the airline industry in the United States is declining. Add high fuel costs and you have a recipe for higher fares.

From BusinessWeek via MSNBC:

n the three decades since the airline industry was deregulated, the flying public has received a free ride, or at least close to it. Thanks to debilitating price wars among airlines seeking an edge over competitors, U.S. airfares have plunged more than 50 percent in real terms since 1978 — giving rise to $49 flights and turning a form of travel that once was the province of the wealthy into the great proletariat pastime.

But when the CEOs of Delta Air Lines and Northwest Airlines sealed their merger accord with a handshake on April 15, the moment probably marked the end of the era of cheap travel. In this new age, major airlines could achieve the critical mass needed to raise fares enough to start recouping some of the $29 billion in losses they've suffered since 2001.

DELTA/NORTHWEST MERGER WILL HAVE TO CLEAR SEVERAL HURDLES

Delta and Northwest may intend to merge, but before that can happen, they will have to deal with union concerns and overcome antitrust regulatory hurdles.

From AP via Yahoo:

If Delta and Northwest are going to complete their deal to create the world's largest airline, they'll first have unions to cajole, politicians to placate, and antitrust regulators to convince.

Two of Northwest's largest unions immediately declared their opposition.

Most importantly, the airlines will need antitrust approval from federal regulators. In 2001, an attempted merger of United Airlines and US Airways fell apart amid antitrust concerns. Executives at Delta and Northwest said they are aiming to close their deal by the end of this year, which would be before the end of the merger-friendly Bush administration.

The takeover announced Monday calls for the combined airline to be named Delta, remain based in Atlanta, and be run by Delta CEO Richard Anderson. If the share-swap becomes final, Delta shareholders will get a bigger company, while Northwest shareholders would get a 16.8 percent premium over Monday's closing stock prices. Based on those prices, the deal values Northwest at more than $3.6 billion.

BLOCKBUSTER AGGRESSIVELY PURSUING CIRCUIT CITY

Blockbuster has offered over $1 billion for electronics retailer Circuit City.

From AP via The New York Times:

Blockbuster Inc. said Monday it has offered to pay more than $1 billion for struggling Circuit City Stores Inc., but the nation's second biggest consumer electronics chain questioned whether the movie-rental company can finance the deal.

Blockbuster Chief Executive James Keyes said combining the companies would create a chain that could sell portable devices and entertainment for them, much like Apple Inc.'s stores.

Keyes said the offer is supported by Blockbuster board member Carl Icahn, who could be a source of financing for the deal.

Circuit City shares climbed 35 percent in morning trading.

Blockbuster, which hopes to enlist Circuit City shareholder support for its bid by disclosing previously private communications with Circuit City's leaders, has had troubles of its own competing with online movie rental operators like Netflix Inc.

Circuit City said it has exchanged information with Blockbuster but wasn't convinced how the movie-rental chain would finance its offer. Circuit City advised its shareholders to take no action until the company board reviews the bid.

Blockbuster said in its February letter it is willing to pursue alternative deal structures which would enable Circuit City shareholders to receive stock. The company would expect to fund the takeover with borrowings and issuance of additional stock through a rights offering to existing shareholders.

Blockbuster says that it requested a response by Feb. 21, but, to date, Circuit City has failed to provide due diligence necessary to allow Blockbuster to make a definitive takeover proposal. Blockbuster is asking for such information as Circuit City's long-term corporate strategic plan and outlook, detailed store-level performance data and current inventory aging schedules, among other items.

GOOGLE/YAHOO ALLIANCE LIKELY WOULD NOT PASS REGULATORY SCRUTINY

As Yahoo explores ways to avoid being taken over by Microsoft, partnering in some way with Google keeps coming up; however, any deal between market leader Google and number two Yahoo would be looked at very closely by the Justice Department.

From Reuters:

Yahoo Inc's attempt to form an alliance with Google Inc to stave off Microsoft Corp could run into more trouble with antitrust regulators than Microsoft's unwelcome takeover bid.

While Yahoo is seeking a business partnership with Google -- unlike the outright merger that Microsoft wants -- legal experts say any deal between the world's two largest Internet search services will draw heavy scrutiny from U.S. and European competition regulators.

"The Justice Department would certainly want to take a serious look at that because it would mean that a firm that would want to take advertisements or to place advertisements (online) would have only one place to go," said Aaron Edlin, who teaches law and economics at the University of California at Berkeley.

Google held a 59.2 percent share of the U.S. Web search market in February, compared with Yahoo's 21.6 percent and Microsoft's 9.6 percent, according to research firm comScore.

MICROSOFT BIDS $44.6 BILLION TO ACQUIRE YAHOO

Microsoft has offered $44.6 billion, or $31 per share, to acquire Yahoo. Yahoo's stock closed at $19.18 per share Thursday, so the offer is a premium of 62%. In pre-market trading Friday, Yahoo shares were trading at $29.06 at the time of this posting.

From The New York Times:

If consummated, the deal would redraw the competitive landscape of the Internet consumer services business, where both Microsoft and Yahoo have struggled to compete with Google.

Microsoft said the combination of the two companies would create efficiencies that would save approximately $1 billion annually. The software giant also said that it has an integration plan to include employees of both companies and intends to offer incentives to retain Yahoo employees.

Earlier this week, Yahoo said it would cut 1,000 jobs in an effort to refocus the company and reduce spending, and issued an outlook for 2008 that disappointed investors.

CME AND NYMEX IN TALKS

According to published reports, the Chicago Mercantile Exchange (CME) and the New York Mercantile Exchange (NYMEX) are in talks about an $11 billion merger that would create a giant energy trading marketplace.

From The New York Times:

In what the two said was a 30-day exclusive negotiating period, the firms said they are discussing a takeover of Nymex by CME. The Chicago exchange would pay $36 in cash and .1323 in CME stock per Nymex share, or about $119.22 based on Friday’s closing price. That represents an 11 percent premium over Nymex’s closing share price Friday of $107.16.

CME will keep Nymex’s trading floors in lower Manhattan and would buy back the exchange’s 816 memberships for a maximum of $500 million.

Both exchanges said that the discussions are early and that any final deal may differ from those terms.

UNITED AND DELTA IN MERGER TALKS?

From USA Today:

UAL Corp.'s United Airlines and Delta Air Lines Inc. have been discussing a combination between the nation's second- and third-largest carriers that would keep the United name and the corporate headquarters in Chicago, The Associated Press has learned.

But Delta issued a statement denying "published reports that it had engaged in merger talk with United." CEO Richard Anderson was quoted as saying, "There have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions."

United called the report of recent talks "wholly inaccurate."

However, on Oct. 12, 2006, then- Delta CEO Gerald Grinstein said during a stop in New York that he had previously received "feelers" from United about a possible merger.

The Wall Street Journal's online edition, citing unidentified people, said Andersen has informally talked about consolidation possibilities with counterparts at other airlines, including senior executives at United and Northwest Airlines.

Earlier Wednesday, Delta said in a statement that its board has established a special committee to work with management to review and analyze strategic options for the airline. Top executives have said recently they are trying to determine whether consolidation makes sense for Delta.

There is a sense of urgency in the most recent talks, which have been going on for some time and continued as recently as a week or so ago, an official with knowledge of the talks said Wednesday. The official spoke on condition of anonymity because the person was not authorized to speak publicly. The official stood by the assertions about the talks after learning of the statements by Delta and United.

"They want to get something done before a new administration gets in and so they get the clock ticking on" federal regulatory approval, the official said.

NEW DETAILS ON SIRIUS/XM PRICING AFTER MERGER

Newly filed FCC documents show that IF, and that is a big IF, the merger between Sirius and XM is approved, prices for some services will increase, others will remain the same, and some will be lower. Here is the breakdown from an AP story at The New York Times.

Lower Price
For customers who choose to receive fewer channels than they currently receive, prices will decrease from the $12.95 monthly rate. Which channels and how much the price will drop is not detailed. Currently, customers can choose to block certain channels like the Playboy channel, but they do not receive a discount for doing so.

Same Price
For customers who choose to keep their same service, expect the price to remain the same.

Higher Price
Customers who choose a "best-0f" service from both providers can expect to pay a "modest premium" above the regular $12.95 fee.

Also from the article:

Sirius and XM were explicitly forbidden from merging when their licenses were granted a decade ago, but the companies are arguing that much has changed since then, and that the companies now face increased competition in audio entertainment from iPods and Internet radio, as well as traditional terrestrial radio.

On Tuesday, a group of six consumer and advocacy groups asked the Senate panel to call for a tough regulatory review of the transaction, which would eliminate one of the only two competitors in the emerging satellite radio business.

The statement from Consumers Union, the Consumer Federation of America and others said that the deal would reduce competition, decrease choices for consumers and possibly lead to higher prices.

SIRIUS CEO TESTIFIES BEFORE THE HOUSE JUDICIARY COMMITTEE

Sirius Satellite Radio CEO Mel Karmazin testified Wednesday before the House Judiciary Committee in a review of the proposed merger between XM and Sirius. In his testimony, Karmazin vowed not to raise subscription fees, but rather to lower them, which at least one member of the committee found unbelievable. From The Wall Street Journal:

Rep. John Conyers (D., Mich.), chairman of both the Judiciary Committee and the task force, was skeptical. "We don't have too good a record of satellite companies keeping their promises," Mr. Conyers said. "'Trust me' isn't going to work here, not just today, but in the longer-term examinations you will be going through."

Other members thought the deal might receive approval, but only if Sirius and XM agree to:

1. allow customers to choose stations on a channel-by-channel basis or a tiered format similar to cable TV.



2. make 5% of the channel capacity available for noncommercial, educational purposes.



3. freeze prices for at least three years.

Karmazin did not seem to think that it would be possible to allow channel-by-channel or tiered subscriptions, and was noncommittal on how long rates could be frozen, suggesting a possible maximum of four years.

XM AND SIRIUS SATELLITE RADIO TO MERGE?

On Tuesday the rumors that had swirled for more than a year regarding a possible merger between the two satellite radio companies in the United States, XM and Sirius Satellite Radio, were confirmed when both companies announced they are interested in a "merger of equals". There will be numerous hurdles to overcome before the companies can merge.

1. The Federal Communications Commission will have to approve the merger. They will take into consideration what is in the best interest of the public and if they do green light the merger, they might require concessions such as being able to regulate satellite radio like the currently do with terrestrial radio and requiring XM and Sirius to give back some of the radio spectrum issued to them by the FCC.
2. The Federal Trade Commission's Bureau of Competition seeks to prevent business practices that restrain trade. They get their charge and power from the FTC Act and Clayton Act, both of 1914. If the Bureau of Competition determines that consumers could lose in a scenario in which there was only one provider of satellite radio, the merger would likely not be approved.
3. The Antitrust Division of the Department of Justice will look closely at the proposed merger, consulting with the FTC to streamline the process and avoid duplication. If the DOJ believes that the merger would be a violation of the Sherman Antitrust Act of 1890 and/or the Clayton Act of 1914, the merger would likely not be approved.

Going from two competing satellite radio companies to one merged company seems to violate antitrust laws - one provider of a good or service that lacks a viable substitute - but XM and Sirius will argue that they do have competitors and substitutes in terrestrial radio, internet radio, and iPods and other portable music devices including mobile phones.

Most proposed mergers take a few months to clear all of the hurdles, but this one will likely take much longer, possibly going into 2008 before a final decision is rendered.

WSJ.com
USA Today

CHRYSLER: $35 BILLION IN 1998 TO $5 BILLION IN 2007

DaimlerChrysler is looking to potentially sell ailing U.S. automaker Chrysler, spin the unit off to existing shareholders, get involved with strategic alliances and joint ventures to cut costs and expand sales, and/or restructure the company once again, according to The Wall Street Journal. Chrysler was valued at $35 billion in 1998 when Daimler-Benz AG merged with Chrysler to form DaimlerChrysler. Today, analysts put the price tag for Chrysler around $5 billion.

SIRIUS & XM SATELLITE RADIO CONSIDERING MERGER?

According to The Wall Street Journal, rivals Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. seem to be considering a merger, but any combination of the only satellite radio providers would face serious legal and regulatory antitrust hurdles from the Justice Department Antitrust Division, the Federal Trade Commission and the Federal Communications Commission. According to Reuters, FCC Chairman Kevin Martin today said, "There's a prohibition on one entity owning both of those licenses," making a merger seem unlikely, but he did leave the door open by saying that the FCC would review any transaction submitted to it.

While Sirius and XM are the only satellite radio providers in the United States, they might be able to get over most antitrust and competition hurdles by arguing that satellite radio competes with traditional terrestrial radio, MP3s, Internet radio, and even cellphones.

While both Sirius and XM have added millions of users, totalling more than 12 million, neither has approached profitability. In the past 12 months, Sirius stock price has fallen more than 35% while XM has dropped more than 40%.