WASHINGTON and NEW YORK – With both companies still awash in a sea of red ink, XM Satellite Radio and Sirius Satellite Radio today announced they will merge in an all-stock merger with a combined value of approximately US$13 billion, which includes net debt of approximately US$1.6 billion.
Under the terms of the agreement, XM shareholders will receive 4.6 shares of Sirius common stock for each share of XM they own. XM and Sirius shareholders will each own approximately 50% of the combined company.
There are no details as yet for what will happen with Sirius Canada and XM Canada. Sirius Canada is a part ownership with Sirius (20%), CBC (40%) and Standard Broadcasting (40%) each owning a piece. XM Radio in Canada operates under a licensing arrangement with John Bitove’s Canadian Satellite Radio.
In a release, Bitove said he is reviewing the situation. "This is great news for the satellite radio industry in North America and could offer further benefits to consumers, retailers, partners and shareholders. As Sirius and XM seek U.S. government approval, we will diligently review the possible alternatives available to Canadian Satellite Radio to benefit our customers and shareholders," he said.
As for Sirius Canada, CEO Mark Redmond couldn’t say much either. "Sirius Canada’s board of directors and senior leadership team is working closely with Sirius Satellite Radio in the U.S., CBC and Standard Radio Inc. here in Canada to ensure the Canadian operation continues to deliver the best entertainment available," he said in a statement.
Mel Karmazin, CEO of Sirius, will become CEO of the combined company and Gary Parsons, currently chairman of XM, will become chairman of the combined company. The new company’s board of directors will consist of 12 directors, including Karmazin and Parsons, four independent members designated by each company, as well as one representative from each of General Motors and American Honda. Hugh Panero, the CEO of XM, will continue in his current role until the anticipated close of the merger.
"The combined company will benefit from a highly experienced management team from both companies with extensive industry knowledge in radio, media, consumer electronics, OEM engineering and technology. Further management appointments will be announced prior to closing. The companies will continue to operate independently until the transaction is completed and will work together to determine the combined company’s corporate name and headquarters location prior to closing," says the release.
There will be significant regulatory hurdles to face as FCC chairman Kevin Martin said only last month that the U.S. Commission would oppose such a merger.
The combination of the two companies would create a North America-wide audio entertainment provider with combined 2006 revenues of approximately US$1.5 billion based on analysts’ consensus estimates. Today the companies have approximately 14 million combined subscribers. Together, Sirius and XM will create a stronger platform for future innovation within the audio entertainment industry and will provide significant benefits to all constituencies, including greater programming and content choices, quicker technological innovation, and enhanced financial performance with estimated cost synergies ranging from US$3 billion to US$7 billion.
"The combined company will be better positioned to compete effectively with the continually expanding array of entertainment alternatives that consumers have embraced since the Federal Communications Commission (FCC) first granted our satellite radio licenses a decade ago," said Gary Parsons, XM’s chairman Hugh Panero, its CEO, in a joint statement.
"This combination is the next logical step in the evolution of audio entertainment," added Mel Karmazin, CEO of Sirius. "Together, our best-in-class management team and programming content will create unprecedented choice for consumers, while creating long-term value for shareholders of both companies.
"The combined company will be positioned to capitalize on Sirius and XM’s complementary distribution and licensing agreements to enhance availability of satellite radios, offer expanded content to subscribers, drive increased advertising revenue and reduce expenses."
The transaction is subject to approval by both companies’ shareholders, the satisfaction of customary closing conditions and regulatory review and approvals, including antitrust agencies and the FCC. Pending regulatory approval, the companies expect the transaction to be completed by the end of 2007.
