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.
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.
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 subscraption 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...
Consumers and fans of satellite radio will have to wait and see if this merger really opens up the material available to satellite radio users, or if it totally blows satellite radio out of the water when it comes to pricing, similar to how cable companies have in certain regions where they are the only provider. If you're a subscriber to either XM or Sirius I'd be greatly interested in your input on this matter.