XM and Sirius satellite radio companies strike a merger deal Updated 2/19/2007 6:12 PM ET By Laura Petrecca, USA TODAY
Satellite radio giants XM (XMSR) and Sirius (XMSR), once fierce rivals, announced on Monday that they will combine forces in an all-stock merger.
The deal is structured as a "merger of equals" with XM stockholders getting 4.6 shares of Sirius common stock for each share of XM stock. XM and Sirius shareholders will each own 50% of the new company.
On Friday, XM closed at $13.98 a share and Sirius closed at $3.70.
Sirius CEO Mel Karmazin will become CEO of the combined entity, which does not yet have a name. XM Chairman Gary Parsons will be chairman.
PRESS RELEASE: Sirius and XM deal
The companies didn't say what position XM CEO Hugh Panero would have going forward. A joint statement only said that Panero "will continue in his current role until the anticipated close of the merger."
Pending regulatory approval, the merger should be completed by the end of this year.
Karmazin and Parsons will join the new board of directors ??? which will have a total of 12 members. XM and Sirius will each pick four independent board representatives. One representative from General Motors and one representative from Honda will also join the board.
An XM and Sirius combination makes sense on many levels, says Sanford C. Bernstein & Co. analyst Craig Moffett.
"The benefits of a merger are simply too good to pass up," he says. "There are obvious financial synergies from the fact that these two companies run similar operations."
He points out that there would be numerous "strategic synergies" as well, where the companies could have better leverage in negotiating contracts.
For instance, a XM-Sirius combination would have more power to reduce the fees paid for on-air personalities. "Programming contract renews could be renegotiated without having one company to play off the other," says Moffett.
XM and Sirius each shell out big bucks for big-name talent, which includes Oprah Winfrey and Howard Stern respectively. For instance, Stern's five-year deal costs Sirius about $100 million a year in fixed costs alone. XM paid $55 million for a three-year deal with Winfrey.
Joining forces would also give XM and Sirius the ability to take a tougher stance with automotive revenue sharing agreements (or in-vehicle satellite radio installations and commission arrangements with retailers that sell satellite radio hardware, Moffett says.
Yet, Moffett and other analysts also expect there to be some hurdles for the companies to overcome.
"Obviously the Commission will evaluate any transaction filed to make a determination whether or not approval would be in the public interest," Federal Communications Commission Chairman Kevin Martin said in a statement. "The hurdle here, however, would be high as the Commission originally prohibited one company from holding the only two satellite radio licenses."
"The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices, " Martin said.
"The hurdle here, however, would be high as the Commission originally prohibited one company from holding the only two satellite radio licenses. The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices. "
The National Association of Broadcasters, a trade association that represents free, local radio and TV stations, as well as broadcast networks, put out a statement against the combination.
"Given the government's history of opposing monopolies in all forms, NAB would be shocked if federal regulators permitted a merger of XM and Sirius," NAB Executive Vice President Dennis Wharton said in a statement. "When the FCC authorized satellite radio, it specifically found that the public would be served best by two competitive nationwide systems.
Jimmy Schaeffler, senior research analyst at consulting and research firm The Carmel Group says he doesn't think regulators will approve the merger since XM and Sirius own the satellite radio market.
"The real issue they face is that there's no real competition for what they do," says Schaeffler. "This set of regulators will not approve an anti-competitive merger."
Yet, Karmazin and Parsons both argue that satellite radio is wrangling with more competitors than ever.
Parsons says they now have to compete with iPods and HD Radio, among the growing range of other entertainment options. There's "a much larger marketplace of competition," he says.
Karmazin also says that the public will win out with a greater overall array of programming content.
"The standard is if the deal is in the public interest," he said. "We believe that the benefits are that that consumer will be the big winner."
"We would not be announcing this if we did not think that we'd have approval," he says.
Satellite radio giants XM (XMSR) and Sirius (XMSR), once fierce rivals, announced on Monday that they will combine forces in an all-stock merger.
The deal is structured as a "merger of equals" with XM stockholders getting 4.6 shares of Sirius common stock for each share of XM stock. XM and Sirius shareholders will each own 50% of the new company.
On Friday, XM closed at $13.98 a share and Sirius closed at $3.70.
Sirius CEO Mel Karmazin will become CEO of the combined entity, which does not yet have a name. XM Chairman Gary Parsons will be chairman.
PRESS RELEASE: Sirius and XM deal
The companies didn't say what position XM CEO Hugh Panero would have going forward. A joint statement only said that Panero "will continue in his current role until the anticipated close of the merger."
Pending regulatory approval, the merger should be completed by the end of this year.
Karmazin and Parsons will join the new board of directors ??? which will have a total of 12 members. XM and Sirius will each pick four independent board representatives. One representative from General Motors and one representative from Honda will also join the board.
An XM and Sirius combination makes sense on many levels, says Sanford C. Bernstein & Co. analyst Craig Moffett.
"The benefits of a merger are simply too good to pass up," he says. "There are obvious financial synergies from the fact that these two companies run similar operations."
He points out that there would be numerous "strategic synergies" as well, where the companies could have better leverage in negotiating contracts.
For instance, a XM-Sirius combination would have more power to reduce the fees paid for on-air personalities. "Programming contract renews could be renegotiated without having one company to play off the other," says Moffett.
XM and Sirius each shell out big bucks for big-name talent, which includes Oprah Winfrey and Howard Stern respectively. For instance, Stern's five-year deal costs Sirius about $100 million a year in fixed costs alone. XM paid $55 million for a three-year deal with Winfrey.
Joining forces would also give XM and Sirius the ability to take a tougher stance with automotive revenue sharing agreements (or in-vehicle satellite radio installations and commission arrangements with retailers that sell satellite radio hardware, Moffett says.
Yet, Moffett and other analysts also expect there to be some hurdles for the companies to overcome.
"Obviously the Commission will evaluate any transaction filed to make a determination whether or not approval would be in the public interest," Federal Communications Commission Chairman Kevin Martin said in a statement. "The hurdle here, however, would be high as the Commission originally prohibited one company from holding the only two satellite radio licenses."
"The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices, " Martin said.
"The hurdle here, however, would be high as the Commission originally prohibited one company from holding the only two satellite radio licenses. The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices. "
The National Association of Broadcasters, a trade association that represents free, local radio and TV stations, as well as broadcast networks, put out a statement against the combination.
"Given the government's history of opposing monopolies in all forms, NAB would be shocked if federal regulators permitted a merger of XM and Sirius," NAB Executive Vice President Dennis Wharton said in a statement. "When the FCC authorized satellite radio, it specifically found that the public would be served best by two competitive nationwide systems.
Jimmy Schaeffler, senior research analyst at consulting and research firm The Carmel Group says he doesn't think regulators will approve the merger since XM and Sirius own the satellite radio market.
"The real issue they face is that there's no real competition for what they do," says Schaeffler. "This set of regulators will not approve an anti-competitive merger."
Yet, Karmazin and Parsons both argue that satellite radio is wrangling with more competitors than ever.
Parsons says they now have to compete with iPods and HD Radio, among the growing range of other entertainment options. There's "a much larger marketplace of competition," he says.
Karmazin also says that the public will win out with a greater overall array of programming content.
"The standard is if the deal is in the public interest," he said. "We believe that the benefits are that that consumer will be the big winner."
"We would not be announcing this if we did not think that we'd have approval," he says.
