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http://www.bloomberg.com/apps/news?pid=20601087&sid=arnph2mlNDqY&refer=homeXM Satellite, Sirius Combination Approved at Justice (Update4)
By Don Jeffrey and James Rowley
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March 24 (Bloomberg) -- Sirius Satellite Radio Inc.'s proposed acquisition of XM Satellite Radio Holdings Inc. won U.S. antitrust clearance to create a single U.S. satellite-radio provider. Shares of both companies surged.
The Justice Department, in approving the deal, said the combined company won't be able to raise prices profitably because of competition from such forms of audio entertainment as broadcast radio and MP3 players.
``We just simply found the evidence did not support a challenge to the transaction under the antitrust laws,'' Thomas Barnett, the Justice Department's antitrust chief, told reporters. There wasn't enough evidence the merger ``would substantially lessen competition or harm consumers,'' he said.
The companies are still awaiting approval by the Federal Communications Commission. FCC Chairman Kevin Martin signaled March 20 that the agency is close to a decision, telling reporters he had asked its staff to draft ``various options.'' The commission ``is looking at it,'' FCC spokeswoman Mary Diamond said today.
XM Satellite Radio rose 15.5 percent, or $1.85, to $13.79 as of 4 p.m. New York time in composite Nasdaq Stock Market trading. Sirius rose 8.6 percent, or 25 cents, to $3.15.
The companies proposed the combination to stem billions of dollars in losses incurred in attracting talent, sports deals and subscribers and to reach profitability sooner than they could on their own. Sirius, based in New York, features Howard Stern and Nascar and has 7.67 million subscribers. Washington-based XM, with Oprah Winfrey and Major League Baseball, has 8.57 million.
Fraction of Audience
``They still have only a fraction of the broadcast audience,'' James Goss, an analyst with Barrington Research in Chicago, said in an interview before the decision. ``On a combined basis their strength is in creating a more efficient business model by not having duplicate costs and not having consumers being forced to choose one or the other.''
Goss and fellow analyst April Horace of Janco Partner in Greenwood Village, Colorado, predicted today the FCC will clear the deal.
``I think the biggest hurdle'' was the Justice Department, said Horace, who recommends buying XM and holding Sirius. Goss rates XM ``market perform'' and Sirius ``outperform'' and doesn't own either stock.
Different Prices
Sirius and XM offered to package programming at different prices to win the support of commissioners. Martin supports a la carte pricing for the cable television industry. Sirius and XM subscribers, who now pay $12.95 a month, may pay as little as $6.99 with the proposed tiered pricing.
The deal was opposed by the National Association of Broadcasters, the trade group that represents free radio stations and waged a lobbying campaign in Congress and at the FCC. The broadcasters' group argued the merger created a pay-radio monopoly.
``We are very disappointed'' by the Justice Department decision, said Senator Herb Kohl, a Wisconsin Democrat. The deal ``will create a satellite radio monopoly,'' he said.
The companies filed documents with the FCC showing support from groups such as the National Association for the Advancement of Colored People and individuals including former FCC Commissioner Reed Hundt, who oversaw the development of rules for satellite radio and granted Sirius and XM their licenses.
Shareholders of the two companies approved the combination in separate special meetings Nov. 13. More than 96 percent of those who voted approved the transaction.
Sirius Chief Executive Officer Mel Karmazin will be CEO of the combined company. XM Chairman Gary Parsons will be chairman. Former XM CEO Hugh Panero resigned during the summer. Nate Davis is the current CEO and a decision about his role in the new company hasn't been made public.
The combined company will eliminate programming that is duplicative, including some music channels.
To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net
