Monday, February 19, 2007

New York Post

Mel Karmazin


February 19, 2007 -- Satellite radio operators Sirius and XM are expected to announce their long-awaited merger today, according to a source familiar with the deal.

The two sides were locked in negotiations over the weekend trying to hammer out a final agreement with an eye toward going public with the merger today in Washington, D.C., where XM is based, this source said.

Talks were still going on at press time and the deal could fall apart at any time. With antitrust issues of paramount importance, this source said lawyers for both companies were working overtime to fine-tune the language of the agreement and frame the discussion around the deal itself and not regulatory concerns.

The transaction is expected to be structured as a merger of equals, but given Sirius' higher enterprise value, shareholders in the Mel Karmazin-led firm will likely come away with a larger percentage of a combined company.

According to the source, XM Chairman Gary Parsons will retain that title in the combined entity, with Karmazin likely taking the CEO role. It is unclear what role, if any, XM CEO Hugh Panero will play.

Combining Sirius and XM would result in a single satellite radio operator with more than 12 million total subscribers. A deal would also marry Sirius content, such as Howard Stern, Frank Sinatra and Nascar with XM's Oprah Winfrey, Bob Dylan and Major League Baseball.

More important, analysts widely predict that a deal would also save the two companies nearly $7 billion annually.

Karmazin and Parsons have been dropping hints since last summer about a possible tie-up, believing that competition from terrestrial radio, online radio and mobile music devices such as iPods have not only expanded the marketplace but also lowered the regulatory hurdles to a deal.

In a note on Friday, Bear Stearns analyst Robert Peck speculated that Sirius and XM needed to move quickly before their window of opportunity closed.

Gaining regulatory approval "could take up to 15 months; hence, we think any proposed deal needs to be announced by the end of March to close by mid-2008," Peck wrote.

On Friday, XM shares hit their lowest point since early November while Sirius shares were approaching 52-week lows. Shares in both companies did trade on heavy volume and ended the session higher, with Sirius gaining 10 cents to close at $3.70 and XM jumping a dollar to $13.98.

XM, Sirius announce merger

Following months of speculation, the two satellite radio operators will combine in a merger of equals; Karmazin will be CEO.

By David Ellis and Paul R. La Monica, staff writers

NEW YORK ( -- Rivals XM Satellite Radio Holdings Inc. and Sirius Satellite Radio announced Monday they would enter into a merger of equals, creating a satellite radio giant.

XM (Charts) and Sirius (Charts) said they would each own half of the combined company, which would offer listeners a much wider variety of programming, including sports, news and high-profile entertainers such as shock jock Howard Stern.

As part of the deal, XM Chairman Gary Parsons would remain chairman of the combined firm, while Sirius' Mel Karmazin would assume the role of CEO. XM chief executive Hugh Panero will remain as CEO until the merger is completed.

The two companies, which have a combined 14 million subscribers, said they had not yet determined a new name for the combined company or where its headquarters would be located.

"This combination is the next logical step in the evolution of audio entertainment," Karmazin said in a statement.

The company would have a market value of roughly $13 billion, including approximately $1.6 billion in net debt.

XM shareholders would get 4.6 shares of Sirius stock for each share of XM they own.

The deal would value XM shares at $17.02, a 22 percent premium to its Friday closing price of $13.98.

Sirius and XM said as a result of the merger it hoped to offer listeners an "a la carte" option, allowing them to pick and choose the channels they wanted, such as Sirius' "Martha Stewart Living Radio" or XM's "Theme Time Radio Hour" with music legend Bob Dylan.

"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," Parsons and Panero said in a joint statement.

Speculation has run rampant on Wall Street about a possible tie-up between XM and Sirius since the beginning of the year.

Both companies, although rapidly growing, have continued to lose money despite strong revenue and subscriber growth.

No 'slam dunk'

David Bank, an analyst at RBC Capital Markets, said he was not surprised by the deal since the merger makes a lot of sense, but he warned the tie-up was not a "slam dunk."

Besides getting shareholder approval, XM and Sirius will also have to get the endorsement of regulators, including the FCC.

The National Association of Broadcasters, a trade group that represents local radio and TV stations, urged policymakers Monday to reject the deal, calling it an "anti-consumer proposal."

"Given the government's history of opposing monopolies in all forms, NAB would be shocked if federal regulators permitted a merger of XM and Sirius," the trade group said in a statement. "It bears mentioning that regulators summarily rejected a similar monopoly merger of the nation's only two satellite television companies - DirecTV and DISH Network - just a few years back."

Bank added that as a condition of the merger the Department of Justice might impose some sort of price caps so that the combined company can't raise monthly subscription rates by a big amount, if at all.

Right now, both Sirius and XM have tiered-payment subscription packages, which start at $12.95 per month or $142.45 per year.

Calls to both XM and Sirius about what impact the merger would have on subscription rates were not immediately returned.

Executives from both companies are planning on discussing the details of the merger on a conference call scheduled for Tuesday morning.