- The Washington Times - Tuesday, September 11, 2007

XM Satellite Radio Holdings‘ stock is on an upswing as it prepares to merge with competitor Sirius Satellite Radio.

Officials from the companies say the merger is likely to close by the end of this year, following regulatory approval from government agencies.

Since early June, XM Satellite Radio’s stock, listed as XMSR on the Nasdaq Stock Market, is up about 20 percent. It closed yesterday at $13.20 a share, down 31 cents or 2 percent.

Last week, XM Satellite Radio and Sirius Satellite Radio filed documents with the Securities and Exchange Commission saying they have provided all the information the Justice Department requested as it investigates whether the merger would violate federal antitrust laws.

XM Satellite Radio and Sirius Satellite Radio are the nation’s only two companies with licenses to provide subscriber satellite radio programming.

A merger would leave only one company providing the service.

However, the companies argue they would not monopolize their industry because they still must compete with MP3 players and land-based radio stations.

If anything, their customers would get a better deal, the companies said in answer to Justice Department inquiries.

“Our customers will have an opportunity to receive more programming at lower prices,” said Chance Patterson, XM Satellite Radio spokesman. The company had reported 8.25 million subscribers by midsummer. It was founded in 1992.

The companies tried to support their claims of better service with release this week of a survey of consumers showing 70 percent of respondents preferred the greater choice of programming they could get through a merger.

The Justice Department is likely to make its antitrust ruling within the next two months, according to industry analysts, who doubt the Federal Communications Commission would try to override the Justice Department’s decision.

However, the chances the merger will win approval are still a close call.

David Bank, research analyst for the financial firm RBC Capital Markets, said last week there is a “probability of favorable ruling greater than 50 percent for merger approval.”

Jeff Wlodarczak, research analyst for Wachovia Capital Markets, said in his latest research note that “the likelihood of regulatory approval continues to be 50/50 at best.”

XM Satellite Radio reported a 22 percent increase in revenue in the second quarter to $277 million, compared with $228 million in the second quarter of 2006.

Despite more revenue, it reported a loss of $176 million, or 57 cents per share, compared with a loss of $229 million, or 87 cents per share one year earlier.

The company says the losses, despite rapidly increasing revenue, result from its infrastructure and other costs.

“This is a business that requires a big investment upfront,” said Mr. Patterson, the company spokesman.

One of its greatest revenue sources comes from the automobile industry, where manufacturers including General Motors Corp., are installing XM radios in their cars. Many automobile buyers stick with the subscriber service after a free trial. They accounted for 295,000 of XM Satellite Radio’s 338,000 new subscribers in the second quarter of this year.

Industry analysts say revenue and subscriber gains are only moderately encouraging for XM Satellite Radio and Sirius Satellite Radio.

“Weak demand trends continue and [satellite] radio cost structures and business models need to be right-sized for a market that is significantly smaller than the companies originally anticipated,” said Mr. Wlodarczak, the Wachovia analyst. “A merger is a logical way to accomplish this process.”

XM’s stock is valued at less than one-half its price of two years ago. Sirius Satellite Radio Inc.’s stock is down by roughly the same margin the past two years. It closed yesterday at $3.16 per share on the Nasdaq exchange, unchanged from Friday’s closing price.

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