XM And Sirius Agree To Merge

Consolidation Of Satellite Radio Rivals Faces FCC Scrutiny

(AP)  If Sirius and XM have their way, Howard Stern and Oprah Winfrey could soon be sharing the same airwaves.

Long bitter rivals, Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. have decided that they would be better off working as one rather than duking it out in the marketplace.

Whether federal regulators agree about that remains to be seen.

Just hours after the two companies announced an agreement to combine on Monday, Kevin Martin, the chairman of the Federal Communications Commission, indicated that approval from his agency wouldn't come easily, particularly since the FCC has a provision in place specifically barring both satellite radio licenses from being owned by the same company.

The FCC will evaluate any proposed transaction to see if it's in the public interest, Martin said in a statement, but he added that: "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.

XM and Sirius have racked up significant financial losses to subsidize new subscribers even as they escalated an arms race to lock in long-term programming deals. Sirius signed a five-year, $500 million deal in 2004 with the shock jock Stern, while XM paid $650 million for an 11-year deal with Major League Baseball. XM signed a three-year, $55 million deal with Winfrey.

A major rationale for combining the two companies would be to save costs.

Mel Karmazin, the CEO of Sirius who will become CEO of the new company, declined to comment in an interview about how much the companies hoped to save by the merger. He said he was optimistic about achieving regulatory approval, but acknowledged: "We understand that there's a lot of work to be done."

Investors and analysts have been speculating about a deal for months, and are hoping that the cost savings that would result would give the companies a boost amid softening retail demand. 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.

The companies billed the deal as a merger of equals, with shareholders of both companies owning approximately 50 percent of the combined company. However, Karmazin will run 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.

XM shareholders will receive 4.6 shares of Sirius stock for every share they own, valuing the company at $4.57 billion or $17.02 per share 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.

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.

It's too early to say what the deal might 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 reported a profit yet. 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.

[olebd]

I hope they improve their equipment and make it more user-friendly to transport from home to the car. I had a Sirius subscription but I had 2 receivers quit working all of a sudden...that was enough for me. I found that I'd rather mix my own music via downloads anyway so I can listen to what I want, when I want.

I'am a Sirius customer for many years, I don't listen to sports at all, or to Sterns or Opah! I listen to Classic Old Radio Shows, while I drive the nine hours from Home to beach, and the nine hours back! I liked it so much that I purchased a lifetime membership, and I will break even this next year!

I would love to see what XM could offer to the already great Sirius radio I get.

As far as the FCC and so called monopoly laws concerning satalite radio, who cares. One of these companies were going to die, maybe both if one doesn't die pretty soon, god forbid it be Sirius...and my Lifetime Membership!

People lets get a grip here, nothing is more important than my personal listening pleasure - don't screw it up with needless cries of radio freedom...Look to see who is already amassing an army of attorneys against this merger - THE BROADCAST RADIO SCUM - They don't want this to happen because it will mean a better service for all of us. So get a grip man!

[jsilver2th]

without freedom of choice we might be in a swamp

[alphaa10-2009]

Approving the XM-Sirius proposal will benchmark the FCC as blantantly anti-consumer, and highlight its rapidly-shrinking list of pro-consumer principles.

The same FCC nodded recently to the buyout of BellSouth by AT&T, and now things are once again closer to the monopoly that existed back when Judge Greene ruled the Bell Telephone Company acted unfairly against competitors-- setting in motion the breakup of the sacrosanct Bell monopoly, and a proliferation of consumer choices that we now take for granted.

Those who can should email or write the FCC about the propsed merger, since it is the clearest example of a monopoly-in-the-making. As Lord Acton observed, "Power corrupts, and absolute power corrupts absolutely."

[mdc76082]

I get all the radio I want from all around the world with my Free-To-Air satellite TV setup. It doesn't cost me a monthly subscription and no contract. For under $200, anyone can have truely FREE radio. You don't need this c_rap. Why would anybody want to contribute to Howard Stern's paycheck? Oprah's? They are overpaid and over publicized hollywood hype (in the words of the late Morton Downey Jr.)"plablum pukes". Libs take no offense please. I can just take about as much of these 2 as I can Ann Coulter. They make me sick.

[dovestar]

You can't be Sirius.

[pandoraboxed]

hey gotagrip!
I am a sirius subscriber & work for a company who installs (((XM))) but I get my new artist's listening to http://pandora.com try it you'll be glad you did.

[slfrighteous]

Wondering if the equipment will start working right? Sirius has some serious issues!
(pun intended :-P)

[gotagrip]

Great, maybe now I can get a progressive rock station again since XM cancelled their old one. Hope they make it, regular radio is awful and these stations are the best way I know to hear new good music. You don't even have to be a pin-up girl to get your music played (unlike regular radio). Now, is my bill going to go up?