Minutes after the Dept. of Justice approved Sirius Satellite Radio Inc.’s (SIRI) merger with XM Satellite Radio Holdings Inc. (XMSR), each company’s shares soared by double-digits…

Yet, until the merger is completed, it’s hard to know whether that sharp jump will continue… whether now is a time to jump in with both feet… or whether the surge will cool on the heels of valuations soon-to-be posted by analysts, who no doubt are bleary-eyed and caffeine-drunk from crunching the numbers through the night.

So the question is, should you buy?

The answer is not an easy one. It depends on three factors.

To begin with, the merger – which was first proposed in November 2007 – still has to pass through the Federal Communications Commission, which could impose conditions that alter the agreement and/or favor the groups that lobbied heavily against it.

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The FCC is expected to rule within the next few weeks. April Horace, an analyst with Janco Partners who has been following Sirius, said the FCC shouldn’t take too long to ponder.

"It’s not like this hasn’t been sitting on the FCC’s plate. It’s been there for a year," Horace said.  

In its ruling, the Dept. of Justice said that a Sirius/XM merger would not violate anti-trust laws because the satellite radio providers face competition from AM and FM broadcasters, television, mobile phones and online music stores and radio stations.

Secondly, the merger still faces tough opposition from one of the most powerful lobbies in the world. Many of Sirius and XM’s competitors are part of the National Association of Broadcasters, one of the merger’s most prominent opponents. And looking at its executive committee – which includes senior managers from billion-dollar media titans such as Hearst-Argyle Television Inc. (HTV), Gannett Co. Inc. (GCI) and Belo Corp. (BLC) – it’s no wonder the DOJ investigation took so long. 

"We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade. To hinge approval of this monopoly on XM and Sirius’s refusal to deliver on a promise of interoperable radios is nothing short of breathtaking," The National Association of Broadcasters said in a statement.

Third, will this merger give the combined companies the leverage they need to reduce operating costs and increase profit?

The merger would likely combine XM and Sirius’ content together for a lower price. Subscribers of both now pay $12.95 a month, but may pay as little as $6.99 with the proposed tiered pricing, Bloomberg reported.  

Sirius has 7.67 million subscribers who have access to premium content that includes talent such as Howard Stern and NASCAR broadcasts. While XM’s 8.57 million listeners pay a premium for content from Oprah Winfrey, Major League Baseball and in-studio artist performances.

To fund such content and compete with each other, both Sirius and XM spend [and lose] hundreds of millions of dollars a year.

Together, they can combine their best programming and management and form a music and news medium better equipped to fight against billion-dollar competitors such as Clear Channel Communications, Inc. (CCU) and Apple Inc. (APPL).

Should you buy?

The cons outweigh the pros, said Lou Basenese, an M&A expert and editor of investment newsletters The Hot IPO Trader and The Takeover Trader.

"Don’t buy either stock, even if they finally get FCC clearance. Ultimately, share prices follow earnings. And neither of these companies have any. Combining won’t change that fact," said Basenese, who has been following the Sirius/XM merger from the beginning.

Moreover, while the premium content of each satellite radio provider is worth its suggested new price, a merger would combine the debts each station paid to have the likes of Howard and Oprah.

"Both companies overspent to acquire content in a bid to expand subscribership as fast as possible – a fatal mistake that will make sustained profitability (as independent or combined companies) impossible for years to come," Basenese said. 

XM shares closed at $13.79 yesterday, going up $1.85 for a 15.49% gain. Sirius shares closed at $3.15, up $0.25 for an 8.62% gain.

Shareholders already approved of the merger. More than 96% of those who voted approved the transaction in separate meetings in November, Bloomberg reported.

But again, a large part of the final deal depends on what stipulations, if any, the FCC lays forth.

News and Related Story Links:

• Wall Street Journal:
  Sirius-XM Gets Antitrust Approval

• National Association of Broadcasting:
  NAB Statement on Today’s DOJ Decision Regarding XM and Sirius

• Bloomberg:
  XM Satellite, Sirius Combination Approved at Justice

Consolidated Media Holdings Ltd., Australia’s second-largest media company, is entertaining a very generous buyout offer from Lachlan Murdoch, eldest son of media tycoon Rupert Murdoch, and James Packer, Australia’s richest person and son of late media tycoon Kerry Packer.

The duo offered $2.9 billion to privatize Consolidated Media, which is 24% higher than the stock’s last traded price. Packer is the company’s executive chairman of the board and owns 38% of the company, Bloomberg reported.

Under the deal’s terms, Murdoch’s private company’s Illryia Pty. Ltd., and co-investors would own 50% of Consolidated Media. Consolidated Press, the Parker-led investment company, would control the other 50%. Lachlan, however, would become the company’s executive chairman.

"It’s a huge premium to pay but we’ll pay it because we like the businesses and I think I can add a lot of value," Murdoch said in an interview with The Wall Street Journal.

Consolidated Media has four operational segments: gaming, television, publishing and ticketing and events. It was formed last year from Packer’s former Publishing & Broadcasting unit when he split from his casino operations, the Journal said.

If Consolidated Media accepts the offer, it will expand the reach and influence of the famed Murdoch family’s media dynasty. Lachlan’s father is Chairman and CEO of News Corp. (NWS), which recently purchased the Dow Jones & Co., publisher of The Wall Street Journal. The company’s assets also include television stations, magazines and newspapers around the world as well as social networking site, MySpace.

Sensing media outcry, the Journal went out of its way to say that Murdoch’s Consolidated bid was independent of News Corp., as he quit his management role with the company in 2005, though he still remains on the company’s board.

The Journal even noted that the last time the younger Murdoch and Packer worked together was a failed mobile phone company, One.Tel Ltd., which lost hundreds of millions of dollars and declared bankruptcy in 2001.

The deal is subject to board approval then shareholder approval, as well as approval from Australia’s securities regulator.

News and Related Story Links:

• Reuters:
  K. Rupert Murdoch bio

• Wikipedia:
  Lachlan Murdoch

• Wikipedia:
  James Packer

• Wikipedia:
  Kerry Packer

• Wall Street Journal: 
  Lachlan Murdoch, James Packer Tie Up for Australian Media Firm

• Bloomberg:
  Lachlan Murdoch, Packer Offer to Buy Out Consolidated

French media giant Vivendi’s (BIT:VIV or PINK:VIVEF) recent deal to buy a major position in U.S.-based Activision, Inc. (NASDAQ:ATVI) has turned the market’s eye to other video game tech stocks.  Activision’s stock rose on 24% Monday after the deal was announced, but other gaming stocks also showed gains as investors bet on potential take-over targets.

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• Take-Two Interactive Software (NASDAQ:TTWO), makers of "Grand Theft Auto," rose 8.7% to close at $16.28.
• THQ Inc. (NASDAQ:THQI) rose 1.8% immediately following the announcement.
• And France-based Ubisoft Entertainment SA (EPA:UBI) rose 5.3%.

Two companies that did not benefit from the announcement were Electronic Arts Inc. (NASDAQ:ERTS) and China-based The9 Ltd. (NASDAQ:NCTY), of which EA currently holds a minority stake.  Both stocks lost in trading on Monday.

The9 Ltd. has a licensing agreement in place with Vivendi to distribute "World of Warcraft," one of the most popular online role-playing games, in the China market.  Investors fear Vivendi’s new deal with Activision, a top EA competitor, will threaten this profitable agreement.

Video games are a multibillion-dollar industry and media conglomerates are looking for ways to capitalize on this fast growing entertainment sector at a time when traditional media like movies and music are struggling worldwide.

Revenues from console and online games are expected to outpace film and music revenues this year.  The video game market is expected to grow 9% annually over the next several years to become worth $48.9 billion by 2011 as reported by the Economist.com. 

"I do believe that consolidation ultimately is inevitable. Video-game development is not getting any cheaper. It’s a capital-intensive business, and I don’t see that going away. That will drive some of the smaller competitors out," Take-Two Interactive Software Chief Executive Ben Feder told a UBS investment conference on Monday.

Traditional media firms have incentive to buy an established video game company rather than invest the start-up time and capital needed to build their own in-house division.

BMO Capital Markets analyst Edward Williams told Reuters that Chinese and Korean game companies make appealing prospects to traditional media firms due to their ties with fast-growing Asian markets and familiarity with profitable online subscription business models. 

"You can’t ignore players in Asia," Williams said.

Companies to watch include: China-based Shanda Interactive Entertainment Ltd. (NASDAQ:SNDA) and Giant Interactive Group Inc. (NYSE:GA) and South Korea-based NCsoft Corp. (SEO:036570).

News and Related Story Links:

• Market Watch:
  Activision hits record high on Vivendi deal

• Reuters:
  Take-Two CEO: Video game mergers "inevitable"

• Economist.com:
  Video-games industry: More than a game