An article on power in social networks in a business context.

When Unequals Try to Merge as Equals

Recently in class we’ve been talking about power in social networks. This article in the New York Times discusses a merger between XM Satellite Radio and Sirius Satellite Radio. The tricky part of this merger is that Sirius, according to the stock market, is worth much more than XM, but they’re saying that the merger is between equals. So why is Sirius paying a 22 percent premium to XM’s shareholders? Shouldn’t Sirius be holding more of the power in this relationship?

As we learned, power in networks lies in four principles: dependence, exclusion, satiation, and betweenness. Satiation does not have much to do with this merger, and, as both companies seem to be doing well enough, exclusion and betweenness does not either. However, dependence played a very large role. Sirius originally began with an offer to buy the company, and when that failed, XM pushed for a deal where Sirius paid a premium. XM didn’t really think Sirius was worth much more than XM and XM knew “they needed each other” to produce the expected savings, and used that to their advantage. Because of the dependence on each other, these companies determined it was best to merge rather than fight over who would own the majority of the company. This is similar to the 2-node example in class, when the dollar is split in half. XM and Sirius do not have other choices for mergers that would be as successful, thus, it makes sense to split the profits in the middle.