Sirius to Acquire Larger Rival XM for $4.57 Billion
Feb. 19 (Bloomberg) -- Sirius Satellite Radio Inc., the second-largest U.S. pay radio service, agreed to buy its larger rival XM Satellite Radio Holdings Inc. for $4.57 billion in stock, combining the only two competitors in the industry.
Mel Karmazin, chief executive officer of New York-based Sirius, will be CEO of the combined company, and Gary Parsons, chairman of Washington-based XM, will keep that position as well, the companies said today in a statement.
Sirius and XM faced pressure to merge from combined losses of almost $7 billion in the past eight years as both spent to attract subscribers with shows featuring Howard Stern and Oprah Winfrey. Neither company has reported a profit. The merger will face antitrust scrutiny and require the U.S. Federal Communications Commission to rewrites rules barring such a deal.
``From a government perspective, it's tricky,'' said Blair Levin, a media policy analyst with St. Louis-based Stifel Nicolaus & Co. Levin said it is more likely than not that the deal will go through.
Under the terms of the deal, which the companies describe as a merger of equals, XM investors will receive 4.6 shares of Sirius common stock for each share they own. Shareholders of each will own about 50 percent of the combined radio company.
The deal values XM at $17.02 a share, based on Feb. 16 closing prices, the last trading before markets closed for Presidents Day in the U.S. That represents a 22 percent premium over XM's close of $13.98. Sirius closed at $3.70. The companies have combined debt of $2.56 billion and cash of about $638 million as of September.
New Board
The new company's board will consist of 12 members, including Karmazin, 63, and Parsons, 56, four independent members named by each company, and one representative from each of General Motors Corp. and American Honda. Hugh Panero, CEO of XM, will continue in his role until deal closes, which both companies expect this year.
Sirius and XM will operate independently until the deal is completed, the companies said. The name of the combined company and the location of its headquarters will be decided later.
Sirius and XM anticipate rigorous antitrust review by the Justice Department and FCC. The companies said today they are competing for customers in broad media landscape that includes products such as Apple Inc.'s iPod, cell phones that play music and Internet music stations.
``What this is really about is war,'' Karmazin said today in an interview.
Karmazin first sparked talk of a merger in June, saying he would be interested in buying rival XM if the price were right.
``Clear synergies are likely there,'' Parsons said at a Citigroup Inc. investment conference on Jan. 9 in Las Vegas.
Subscribers
XM finished the year with 7.63 million subscribers, shy of the 7.7 million to 7.9 million it had forecast in November. The number of users rose 29 percent from 2005.
Sirius subscribers increased 82 percent to 6 million last year, in line with its forecast.
As of Feb. 16, Sirius had a market value of $5.2 billion, while XM was valued at $3.75 billion.
Sirius's euro denominated shares rose almost 8 percent today in Germany, while XM shares gained 4 percent.
``Does something like the iPod really compete with satellite radio?'' said analyst Levin. If federal regulators decide it doesn't, the deal is likely to be rejected, Levin said.
