Q1.

In January 2007, XM enjoyed about 58 percent of satellite radio subscribers, and Sirius had the
remaining 42 percent. Both firms were suffering losses, despite their dominance in the satellite radio
market. In 2008, the DOJ decided not to challenge a merger, and these two firms united to become
Sirius XM. If you were an economic consultant for Sirius, what economic arguments would you have
presented to the DOJ to persuade it not to challenge the merger? Explain
Answer
I would present to the DOJ to persuade it not to challenge the merger, the points are as follows;
The answer for the same is that presently companies have stopped playing the short-sighted game, but
have learnt to look at the bigger picture and that is why I believe that Yes, Loss-making companies can
be an attractive target and the reason for the same are multifold as just looking at the profits of the
companies is a very inadequate, orthodox albeit safe way of doing business. So, sometimes taking risks
in present loss-making entities reap much more financial benefits in future.
Tax benefit- as both are loss making therefore this leads to a deduction of profits which further leads to
a reduction in tax payable. Tax carry forward helps Sirius XM to offset the income it plans to earn which
will help in saving taxes. So, sometimes a loss-making entity becomes a very attractive target due to
their ability to help in tax gains.
Eliminating Competition – Sometimes, despite being a loss-making entity company have a huge
potential of growth. So to the other profitable companies in the same sectors, Sirius XM loss-making
company might seem like a very attractive target to remove any future competition in the present itself.
Huge valuations of Intellectual Property Rights- they both are loss making firms but may hold assets of
high value which are still of worth and as a consultant of Sirius XM hold more of a market share
therefore it would be beneficial for Sirius.