Upcoming deals such as Sirius Satellite Radio's planned takeover of XM Satellite Radio could be helped by a court decision in favor of a takeover deal between two organic food retailers.
Judge Paul Friedman of the U.S. District Court for the District of Columbia on Thursday rejected a request from the Federal Trade Commission (FTC) to temporarily block Whole Foods Market Inc's takeover of Wild Oats Markets -- a blow to the FTC which had argued that the combination could hurt competition in two dozen U.S. markets.
The FTC lost another round on Friday as Friedman refused to grant a stay while it appealed to a higher court for a preliminary injunction against the $565 million merger.
The decision is a modest positive to two other planned combinations -- Sirius' takeover of XM Satellite; and Google's acquisition of digital advertising firm DoubleClick -- wrote Blair Levin, analyst at Stifel Nicolaus and former Federal Communications Commission official, in a research note published on Friday and obtained by Reuters.
It gives the companies new legal ammo to argue for defining their relevant markets broadly, which could reduce antitrust concerns about potential anti-competitive effects, Levin wrote. At a minimum, it gives the reviewing agencies some food for thought, he added in the note.
The Sirius/XM deal is being reviewed by the Department of Justice and the Federal CommunicaTions Commission, he wrote. The Google/DoubleClick deal is being reviewed by the FTC.
The organic foods deal has particular similarities to the planned Sirius/XM deal, lawyers said.
If I'm XM and Sirius, I'm feeling pretty good about this decision, because it has many of the same attributes, said Mark Ostrau, co-chair of law firm Fenwick & West's antitrust group.
In both situations there is a large market broken down into segments. In one case it is the groceries market, a segment of it being the organic foods market. In the other case, it is the radio and entertainment market in which a segment of that market is satellite radio.
If the segments are considered markets in their own right, the deals look more anti-competitive, he said.
If the segment were considered a market it would be hard to dispute that either merger would be anti-competitive, but if a court refuses to believe that there is a separate segment, then there's nothing to stop (in terms of the deals), said Ostrau.
Shares of XM Satellite closed nearly 3 percent higher at $10.86 on Friday while Sirius closed up 3 percent at $2.80. Google closed 1.7 percent higher at $500.04.
In the Wild Oats/Whole Foods case, the FTC had argued the deal could hurt competition in two dozen U.S. markets and could lead to the closing of some Wild Oats stores.
But the two chains said they already faced stiff competition from traditional supermarkets. Austin, Texas-based Whole Foods operates nearly 200 stores in the United States and Britain, while Wild Oats of Boulder, Colorado, runs about 110.
In the Sirius/XM case, more than 70 lawmakers urged antitrust authorities to block the proposed combination, contending it would create a monopoly, while the National Association of Broadcasters said the deal would mean higher prices per channel for consumers.
But the deal's proponents claim that the existence of traditional radio, as well as alternatives like MP3-based sound systems, mean there is plenty of competition out there.
I think these tend to be very factual inquiries but it certainly shows that this court at least was very skeptical of the submarkets, so from that perspective I think it is helpful to XM/Sirius, said Joel Greenberg, partner and co-chair of law firm Kaye Scholer LLP's Corporate and Finance Department. It certainly can't be harmful.
There's no question that if you want to attack the XM/Sirius merger you have to do it by saying (that) satellite radio is a distinct market, Greenberg added.
But he said it was hard to generalize because the Whole Foods opinion was not made public. Friedman gave no hint why he denied the injunction in Thursday's decision. The judge's 93-page order was sealed.
Sirius was not available for comment on Friday. XM declined comment on the impact the decision could have on its deal.