After months of speculation, the two major satellite radio companies have made it official. XM and Sirius Satellite Radio have announced a planned all-stock merger that they say will create a satellite radio company valued at $13 billion, with debt of $1.6 billion.
XM shareholders each get 4.6 shares of Sirius common stock for each share of XM stock. Combined, the companies claim 2006 revenues of $1.5 billion and approximately 14 million subs.
Mel Karmazin, CEO of Sirius, will be CEO of the new company, with Gary Parsons, XM Chairman, becoming chairman. Hugh Panero, CEO of XM, will continue in that post until the merger closes.
The deal could run into some trouble at the FCC, however, where
Chairman Kevin Martin has said
that FCC rules prohibit the satellite licenses of Sirius and XM to be held by the same company, though the FCC has the ability to change that rule. The chairman said that the FCC is always willing to look at deals put before it.
Martin reiterated that Monday in a statement responding to the announcement: "Obviously the Commission will evaluate any transaction filed to make a determination whether or not approval would be in the public interest. 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."
National Association of Broadcasters' spokesman Dennis Wharton didn't think the deal would pass muster.
"Given the government's history of opposing monopolies in all forms, " he said, "NAB would be shocked if federal regulators permitted a merger of XM and Sirius. It bears mentioning that regulators summarily rejected a similar monopoly merger of the nation's only two satellite television companies--DirecTV and DISH Network--just a few years back.
"When the FCC authorized satellite radio, it specifically found that the public would be served best by two competitive nationwide systems. Now, with their stock prices at rock bottom and their business model in disarray because of profligate spending practices, they seek a government bail-out to avoid competing in the marketplace.
"In coming weeks, policymakers will have to weigh whether an industry that makes Howard Stern its poster child should be rewarded with a monopoly platform for offensive programming. We're hopeful that this anti-consumer proposal will be rejected."
XM and Sirius were already making their public benefit case in the release announcing the deal, arguing that the meld would provide the audience with "greater," not less, programming choice, including working in a Kevin Martin-friendly buzzword by arguing the deal would allow them to offer content on a "more a la carte basis."
One way the two companies might pass muster is by making the case that, to survive, they needed to get together. They also argued that the merger would allow them to offer a wider range of less expensive devices that would be "essential to remaining competitive in the consumer electronics-driven world of audio entertainment."
And by using the term "audio entertainment," they are laying the foundation of an argument that the marketplace for such entertainment is competitive, with over-the-air broadcasting and cable and Internet radio as well as satellite radio.
In fact, they said as much: "The combination of an enhanced programming lineup with improved technology, distribution and financial will better position satellite radio to compete for consumers' attention and entertainment dollars against a host of products and services in the highly competitive and rapidly evolving audio entertainment marketplace," the two companies said in their joint release. " In addition to existing competition from free "over-the-air" AM and FM radio as well as iPods and mobile phone streaming, satellite radio will face new challenges from the rapid growth of HD Radio, Internet radio and next generation wireless technologies.
Viewed that way, allowing the two to merge would still leave several competitors in the market.
At a media conference in New York in December, Karmazin had done nothing to quell merger rumors, saying: "You're talking to somebody who believes in consolidation. I think consolidation creates value."
Spokespeople for Sirius and XM had not returned calls at press time, but if the deal can secure the approval of the FCC and other regulatory agencies, it is expected to close by the end of the year.
No word on where the headquarters will be located or what the new name might be. Xmus might have some holiday tie-ins, while Sirium sounds a bit too much like a drug. XS, perhaps, with the tag line: "You can never get enough of a good thing."
