XM and Sirius merger

[Nick]

http://www.msnbc.msn.com/id/17228226/

XM and Sirius reach agreement on merger

Deal between two satellite radio providers would be ‘merger of equals’

NEW YORK - XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc., rivals in the fledgling satellite radio industry, have agreed to combine in a deal that investors hope will result in lower costs, assuming it overcomes significant regulatory hurdles.

The companies billed the deal announced Monday as a merger of equals, with shareholders of both companies owning approximately 50 percent of the combined entity. However, Sirius will be giving $4.57 billion of its stock to XM shareholders, a substantial premium to the value of their shares.

Sirius' Chief Executive Mel Karmazin will lead the combined company, and XM's CEO Hugh Panero will stay on only until the deal is closed. XM Chairman Gary Parsons will remain in that role.

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The deal faces substantial obstacles in Washington, including a Federal Communications Commission provision that specifically forbids the two companies to combine.

Analysts have noted that the FCC could change the rule, but in a statement late Monday FCC Chairman Kevin Martin said that the "hurdle" would be "high" to prove that the deal would be in the public interest.

"The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices," Martin said.

A combination would also have to meet antitrust approval from the Department of Justice. The companies are expected to argue that they compete not only with each other but also with traditional radio and a growing base of digital audio sources such as iPods, mobile phones and non-satellite digital radio.

The XM shareholders will receive 4.6 shares of Sirius stock for every share they own, valuing them at $17.02 each based on Friday's closing price for Sirius shares. That gives XM shareholders a premium of 22 percent to the $13.98 closing value of their stock on Friday. Markets were closed Monday for the Presidents' Day holiday.

"This combination is the next logical step in the evolution of audio entertainment," said Karmazin. "Together, our best-in-class management team and programming content will create unprecedented choice for consumers, while creating long-term value for shareholders of both companies."

Investors and analysts have been speculating about a deal for months, and are hoping that the cost savings that would result would make up for softening retail demand for satellite radio units. Both services offer dozens of channels of talk and commercial-free music for monthly fees of about $13.

XM radio receivers can't receive signals from Sirius, and vice versa. But Karmazin and Parsons said in an interview that the companies are working on developing a receiver that could receive both signals.

In the meantime, they said, assuming the deal goes through, the companies would make other arrangements to bring programming that's currently exclusive to one provider to listeners of the other, such as getting Major League Baseball games — currently only available on XM — to Sirius listeners.

"We will be taking every effort to find the best possible programming combination," Parsons said.

It's too early to say what the deal will mean for subscription prices. The merger could bring down the cost of providing service, but at the same time give the company more pricing power as the only U.S. satellite radio provider.

Karmazin declined to comment specifically about how much the companies hoped to save by the merger, but he said he expected the deal to clear regulatory approval and close within six to nine months. "We understand that there's a lot of work to be done," Karmazin said.

Neither XM nor Sirius have turned a profit yet as they spent heavily to build up their programming lineups and subscriber bases, including a five-year, $500 million contract that Sirius made with the shock jock Howard Stern. Both stocks declined more than 40 percent last year on concerns about their continued growth in subscribers, but investors have held out hope of a merger.

The combined company would have had about $1.5 billion in revenues in 2006 and about 14 million subscribers, they said. The companies said they would work together to decide on a new name and also to determine where it would be based. XM is based in Washington, while Sirius is based in New York.

The new company's board will have 12 members, including Parsons, Karmazin, four independent directors named by each company, and one representative each from General Motors Corp. and Honda Motor Co.

News of a possible merger was reported earlier Monday by the New York Post.

On Friday, a Bear Stearns analyst said in a research note that a merger would have a good chance of overcoming regulatory obstacles.

Other analysts remain less sure. Sanford C. Bernstein analyst Craig Moffett said he gives the deal a "50-50" chance of passing regulatory muster.

Moffett said the deal could have a particularly tough time getting through the FCC, and said it was "anyone's guess" as to whether the FCC would change its rule barring a consolidation of the two satellite radio companies.

A group representing radio companies, the National Association of Broadcasters, put out a statement Monday urging federal regulators to block the satellite radio deal.

© 2007 MSNBC Interactive

[ZL-1]

Smaller company buys bigger company and puts its CEO in charge. That isn't a merger of equals, it's an old fashioned acquisition.

[Drew Dowdell]

I don't think it'll get over the FCC hurdle. When the FCC started issuing these licenses they specifically said that the two companies were to remain separate. The only way I can see this happening is if one license is sold off to another company.... maybe somebody like Dish Network, ClearChannel, or Comcast would be interested.

[aaaantoine]

Doesn't this essentially create a satellite radio monopoly?

[CSpec]

Doesn't this essentially create a satellite radio monopoly?

Technically, yes. But I think this type of market is closer to something like a city subway system--having competing subway lines with their own tracks and stations is grossly inefficient. In this case, consumers have to buy either receiver and cannot recieve the rival company's stations without buying a different receiver. By merging, consumers will most likely be better off with more stations and lower costs.

[Drew Dowdell]

By merging, consumers will most likely be better off with more stations and lower costs.

Unlikely. Satelite radio is essentially an IP based system. There is only so much bandwidth to go around. I don't know how close to maximum capacity each company is, but with my XMRadio, sometimes stations sound "grainy"..... this tells me that the audio compression is turned waaaay up. While there is bound to be some overlap between companies, Who really knows how much more each company could add.

[CARBIZ]

...WTF?? Typical. The two rivals spend millions slagging each other and paying way too much for the likes of Stern, etc., then go boo hooing to the FCC that they want to merge? I've paid up my XM until August. This doesn't sound good to me. These guys are jumping the gun. Of course their start up costs are going to be high, but don't they amortize those over many years?

Name one industry where a single entity resulted in better service and lower costs.

Or doesn't anyone remember when it was ILLEGAL to have more than one phone jack, unless you paid to have it installed AND used only Bell equipment?

[NOS2006]

GM uses XM. Chrysler uses Sirius. Ironic?

[Z-06]

Unlikely. Satelite radio is essentially an IP based system. There is only so much bandwidth to go around. I don't know how close to maximum capacity each company is, but with my XMRadio, sometimes stations sound "grainy"..... this tells me that the audio compression is turned waaaay up. While there is bound to be some overlap between companies, Who really knows how much more each company could add.

You are right it is an IP based system. The part of it is not being close to the capacity but being "undercapacity". Both the providers are not able to gain the number of customers they were hoping to. It is like buying a baseball size field to play tic-tac-toe. I think XM has 5 geostationary satellites and sirius has 9 in turn. These relay signalls alternating so that no matter where you are in the country at least one has to be above you provided if you are not in a basement or a tunnel. The grainy-ness is usually caused when you are jumping through the satellites or are under high rise city buildings where they are putting booster antennaes to enhance the capacity or in a valley. Theorittically the way the systems are setup you cannot get loss of signal when you have decent signal even if you are operating at the maximum capacity.

...WTF?? Typical. The two rivals spend millions slagging each other and paying way too much for the likes of Stern, etc., then go boo hooing to the FCC that they want to merge? I've paid up my XM until August. This doesn't sound good to me. These guys are jumping the gun. Of course their start up costs are going to be high, but don't they amortize those over many years?

Name one industry where a single entity resulted in better service and lower costs.

Or doesn't anyone remember when it was ILLEGAL to have more than one phone jack, unless you paid to have it installed AND used only Bell equipment?

Absolutely! I think what it may trigger is the death of satellite radio if they increase price or anything. But at the same time it will open up competition for a smaller player with better ideas.

[FAPTurbo]

I guess the MP3 file can chalk up another victory.