Sirius, XM Plan Merger

By Mike McGann
Posted Monday, February 19, 2007

There's a ton of regulatory, shareholder and technical hurdles to clear, but satellite radio companies Sirius and XM Radio announced their plans to merge, an attempt for both companies to stop bleeding cash.

According to a joint statement by the two companies, issued Monday, they have entered into a definitive agreement, under which the companies will be combined in a tax-free, all-stock merger of equals with a combined enterprise value of approximately $13 billion, which includes net debt of approximately $1.6 billion.

Under the terms of the agreement, XM shareholders will receive a fixed exchange ratio of 4.6 shares of SIRIUS common stock for each share of XM they own. XM and SIRIUS shareholders will each own approximately 50 percent of the combined company.

The timeframe for merged operations, though, the end of 2007, seems aggressive in light of needing both approval from the Federal Communications Commission and the Federal Trade Commission. A similar proposed merger of DirecTV and EchoStar was shot down by government regulators earlier this decade, because it would have left a single satellite TV provider for the U.S. It is unclear how this situation would differ. And while stockholder approval seems likely for the deal, the two networks use different technology — and even different kinds of satellites to deliver their signals, something that could cause consumer headaches during any transition.

Mel Karmazin, currently Chief Executive Officer of SIRIUS, will become Chief Executive Officer 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 Chief Executive Officer of XM, will continue in his current role until the anticipated close of the merger.

Both sides claim expanded options for the merged company's consumers, including better access to programming from sports to Howard Stern, currently divided up between the two services.

The management teams for both companies were spreading nothing but sunshine and puppies about the proposed deal.

"We are excited for the many opportunities that an XM and SIRIUS combination will provide consumers," said Gary Parsons, Chairman of XM Satellite Radio and Hugh Panero, CEO of XM Satellite Radio, in a joint statement. "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."

"This combination is the next logical step in the evolution of audio entertainment," said Mel Karmazin, CEO of SIRIUS Satellite Radio. "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. Each of our companies has a strong commitment to providing listeners the broadest range of music, news, sports and entertainment and the best customer service
possible. We look forward to sharing the benefits of the exciting new growth opportunities this combination will provide with all of our stakeholders."

The two companies are expected to reveal more information Tuesday during a conference call with the media.