Monday, February 19, 2007

Satellite Radio Monopoly!

Yesterday XM and Sirius Satellite Radio announced that they have agreed to an all-stock merger of equals with a combined enterprise value of approximately $13 billion, which includes net debt of approximately $1.6 billion.

Together they would create a company that earned combined 2006 revenues of approximately $1.5 billion and approximately 14 million combined subscribers. Mel Karmazin, currently 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 companies said yesterday that their $13 billion merger — code-named Project Big Sky by XM — would give consumers a broader range of programming, while eliminating overlapping stations that focus on genres of music. At the same time, they said, they could cut duplicated costs in sales and marketing.

The companies cited several reasons for the merger, including synergies for content programming. They also hope to improve on products such as real-time traffic and rear-seat video and introduce new ones such as advanced data services including enhanced traffic, weather and infotainment offerings.

The companies’ services are, for the moment, not compatible. If the merger were approved, officials said yesterday, they would provide subscribers with technology that would allow them access to both services. Each sells subscriptions for $12.95 a month.

There will be some complications they'll have to work out though, which will be interesting to watch. For one, XM has prided itself on being advertising-free while Sirius sells ads on its talk radio fare. The cost of the combined service is yet to be determined, as is the name, and the fact that the companies are based in different parts of the country at the moment.

The big question of the moment is whether or not the merger will be approved. 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. The issue is that the FCC has already hinted that it might not approve a merger of the two satellite giants.

Optimistically, pending regulatory approval, the companies expect the transaction to be completed by the end of 2007.

Will this save satellite radio? Probably not, but at least they won't have any competition besides AM/FM radio, iPods, and Internet radio.

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