XM Radio last week announced it has put together a $450 million financing package that includes $200 million in cash from new investors and restructuring of $250 million in existing debt owed to General Motors.
The deal will dilute the value of existing shares but is expected to keep the satellite radio company in business at least until mid 2004, when the company hopes to be generating enough money to operate.
Both XM and its competitor, Sirius Satellite Radio Inc., are pinning hopes on American motorists' latching onto satellite radio through car radios.
The new investors include American Honda, Hughes Electronics, Hearst Corp., Columbia Capital, AEA Investors, Eastbourne Capital Management, BayStar Capital and others. The new notes are convertible into common stock at $3.18 per share.
General Motors, which is installing XM radios in 25 of its 2003 vehicle lines, agreed to defer or finance its future obligations. Additionally, XM said it will exchange all $325 million of discount notes due 2009. XM Chief Executive Hugh Panero said that removes doubt about the company's ability to fund operations until cash flow is sufficient to break even.
Based on sales to date, XM predicted it would have more than 350,000 radios sold and ready for activation by New Year's Eve. There were slightly more than 200,000 subscribers to XM Satellite Radio at the end of the third quarter.
Despite more than $1 billion invested largely in advertising and promotion, the economic downturn has not helped satellite radio business to a quick start in its attempt to convert people used to listening to radio for free into paid subscribers. XM laid off 80 employees last month.
In October, XM's satellite-radio competitor Sirius announced its intent to recapitalize $1.2 billion, which, the company said, will give it enough cash to operate through the second quarter of 2004.
Stock offerings are intended to add $200 million in new capital, eliminate $700 million in debt and convert $525 million in preferred stock into common stock. The stock exchange will dilute the value of Sirius common stock by 8%.
So far, Sirius has signed up 14,000 subscribers but has said it expects 400,000 by the end of next year. Satellite radios receiving Sirius can be found in models from DaimlerChrysler, Nissan and BMW of North America LLC. Both XM and Sirius have moved into the rental-car market.