- The Washington Times - Tuesday, February 20, 2007

Rivals XM Satellite Radio and Sirius Satellite Radio agreed to combine in a $13 billion stock transaction, the companies announced yesterday.

Under the deal, billed as a “merger of equals,” Sirius Chief Executive Officer Mel Karmazin and XM Chairman Gary Parsons will keep their respective positions in the combined company. XM CEO Hugh Panero will stay on until the deal closes, which the companies expect to happen by the end of the year.

Shareholders of District-based XM and Sirius, based in New York, each will own about 50 percent of the new company, whose name and headquarters have not been determined.

The deal, pending regulatory approval, would join the only players in the decade-old industry. Together, XM and Sirius fund a roster of high-profile talent ranging from shock-jock Howard Stern to daytime talk-show queen Oprah Winfrey, catering to 14 million subscribers.

“We are excited for the many opportunities that an XM and Sirius combination will provide consumers,” Mr. Parsons and Mr. Panero said in a joint statement that touted more programming choices and billions of dollars in savings.

While receivers for both companies can’t receive signals from each other, Mr. Parsons and Mr. Karmazin told the Associated Press yesterday they are developing receivers that could receive both signals. Meanwhile, the company is working on other arrangements to bring formerly exclusive programming to both subscriber bases, they said.

Currently, XM has more than 7.6 million subscribers and a market capitalization — the value of a company based on the stock price multiplied by the number of shares outstanding — of $3.75 billion, while Sirius has more than 6 million subscribers and a market cap of $5.2 billion.

The rate of subscriber growth has slowed at both companies, which had combined revenue of $1.5 billion last year. XM and Sirius also have drawn the ire of Wall Street for bleeding millions of dollars on competing with each other over the years for high-priced talent.

“This is happening because investors are just out of patience,” said Tom Taylor, editor of Inside Radio. “They’re just tired of this spiral of red ink, of losing money and costs that continue to go on.”

The two companies’ rosters mirror each other. XM boasts of personalities such as Oprah and shock jocks Opie and Anthony, with content from Major League Baseball, IndyCar Series Racing and college football’s Bowl Championship Series. The Sirius lineup includes Mr. Stern, Martha Stewart, the National Football League, NASCAR and the National Basketball Association.

The merger must be approved by the Federal Communications Commission and Department of Justice.

The FCC’s rules on satellite radio licenses currently bar such a deal, and Chairman Kevin J. Martin said yesterday the regulatory hurdle would be “high.”

“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,” said Mr. Martin, a Republican.

The Justice Department did not respond to requests for comment yesterday, a federal holiday.

Sirius and XM are expected to make the case that market conditions have changed significantly since 1997, and they alluded to that in their announcement yesterday.

“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 first granted our satellite radio licenses a decade ago,” Mr. Parsons and Mr. Panero said.

Representatives for Sirius and XM did not return calls seeking additional comment.

Rumors of a merger between Sirius and XM have been brewing for months, fueled by analysts’ speculation and public statements made by the companies’ executives. Last month, at the International Consumer Electronics Show in Las Vegas, both Mr. Parsons and Mr. Karmazin appeared open to the idea, with Mr. Karmazin noting that “consolidation creates value.”

The deal has its critics. In a statement yesterday, Dennis Wharton, executive vice president of the National Association of Broadcasters, described the deal as “a government bailout to avoid competing in the marketplace.” The NAB is a trade group whose members include traditional radio stations.

The board of directors for the combined company will have 12 members. In addition to Mr. Parsons and Mr. Karmazin, each company will name four members. General Motors Corp. and Honda Motor Co. will each have a seat.

The companies will hold a conference call this morning to discuss the deal.

On Friday, shares of XM closed at $13.98 and Sirius closed at $3.70 on Nasdaq. Markets were closed yesterday in observance of Presidents Day.

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