MUMBAI: XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. until now rivals in the US satellite radio industry, have agreed to combine in a deal.
The shareholders of both companies will own approximately 50 per cent of the combined company. However, Sirius will be giving a substantial premium of $4.57 billion of its stock to XM shareholders.
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 continue in that role.
The deal announced on 19 February faces substantial regulatory hurdles in Washington, including a Federal Communications Commission provision that specifically forbids the two companies from combining. Analysts note, however, that the FCC could change the rule or allow an exception to it.
The merger 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.
Investors and analysts have been speculating about this 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. While 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.
Neither XM nor Sirius have turned a profit yet due to heavy spending on programming lineups and subscriber bases. Both stocks declined more than 40 percent last year on concerns about their continued growth in subscribers.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. A group representing radio companies, the National Association of Broadcasters, put out a statement Monday urging federal regulators to block the satellite radio deal.
