Bob W.

sooner than even I thought...fire sale on XM units!

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Sirius plans to buy XM in $4.6 billion stock deal

Monday February 19, 7:33 pm ET
By Franklin Paul and Dane Hamilton

NEW YORK (Reuters) - Sirius Satellite Radio (NasdaqGS:SIRI - News) plans to buy larger U.S. rival XM (NasdaqGS:XMSR - News) for $4.6 billion in stock to bring entertainers such as Oprah Winfrey and shock-jock Howard Stern under one roof, but a top regulator said the deal would face a tough time winning approval.

Under the agreement announced by the two companies on Monday, XM shareholders would receive 4.6 Sirius shares for each XM share held, or a 21.7 percent premium to XM's closing share price of $13.98 on Friday,

Sirius would be paying about $4.6 billion in stock for XM based on shares outstanding in the latest regulatory filings.

The deal would create a company with about $1.5 billion in 2006 revenue and an enterprise value of $13 billion, including $1.6 billion in net debt.

"This combination is the next logical step in the evolution of audio entertainment," Sirius Chief Executive Mel Karmazin, a veteran media executive who will lead the new company, said in a statement. He said it would create "unprecedented choice for consumers."

But the deal will likely face tough regulatory scrutiny and objections from terrestrial radio companies.

U.S. Federal Communications Commission Chairman Kevin Martin said the agency would review the deal but "the hurdle here, however, would be high as the commission originally prohibited one company from holding the only two satellite radio licenses."

Martin said the companies would have "to demonstrate that consumers would clearly be better off with both more choice and affordable prices."

Karmazin and XM Chairman Gary Parsons told Reuters in a phone interview that they hope to meet with the FCC "shortly."

XM and Sirius say they should be allowed to combine as they compete with every audio device that consumers use -- from typical car radios to digital music players. As one company, they said they can offer improved services at flexible prices.

"We are confident we will get this through the regulatory arena by the end of this year," Parsons said. "Over a decade ago when the first satellite licenses first came out, there were no iPods, there was no HD radio, there were no streaming music on cell phones."

Parsons said the merger agreement carries a break-up fee of $175 million.

"I think it's a close call, but more likely than not I think the Justice Department and the FCC approve it," said Blair Levin, an analyst at Stifel Nicolaus & Co. and a former FCC chief of staff during the Clinton administration.

The National Association of Broadcasters, which represents local broadcast radio stations, criticized the tie-up because it would concentrate the licenses into one company.

"Now, with their stock prices at rock bottom and their business model in disarray because of profligate spending practices, they seek a government bailout to avoid competing in the marketplace," said NAB spokesman Dennis Wharton.

Karmazin and Parsons said they planned to continue to support radio devices offered by both companies while developing a new product that would work on both satellite radio services.

While the companies called the deal a "merger of equals," Sirius would own about 53 percent of the shares of the combined entity and XM would own about 47 percent under terms of the deal and based on the companies' outstanding shares in the latest filings.

Parsons will be chairman of the merged company, but Karmazin will remain CEO -- a sign analysts and shareholders typically use when determining which company gets the upper hand in a "merger of equals."

The two companies said they would work together to determine the combined company's name and headquarters.

XM CEO Hugh Panero would continue in his current role until the merger closes.<ul><li><

daveak05

doubt any fire sale on XM stuff. it would gut the acquired company, screw up the value and bottomline of the post merger company.

they will make the two product lines compatible, an either or deal. saw it when i worked for HP and they acquired Compaq...Compaq product didn't take a hit, in fact it's still out there as a separate brand, but from the day the merger completed, all Compaq was interchangeable and money from full value sales of Compaq product went into HP.

Bob W.

XM had a 2-year head start in satellite radio, and now they're being acquired by a rival company...I wouldn't say that's a sign of a 'better company.' If XM had signed Howard Stern (and they had a chance to) the tables would be turned....they just blew it.

daveak05

yeh, they were first, had better deals with auto makers, better reseller agmts, better mfg, and financially the company was much better off than Sirius, which financed their company thru huge debt on the backs of it's shareholders(1.2 billions shares out).

This merger was a rumor for about a year, with Sirius always being mentioned as the acquiring company. Go figure, but it happened that way after all. XM f*cked up, threw it away somehow. When the Time Warners and Murdock's make a major push in sat radio, I have a feeling Sirius will be screwed too. It's coming.

ReconTrojan

with no DJ's . I signed up to XM on the first day, my wifes M3 had Sirius and I liked Ch 22 1st Wave and there was no such channel on XM...plus it had all the olf KROQ DJs. MTV etc. The numbers clearly showed people liked it better...plus they partnered correctly....XM knew its day was coming.

gofastblue

<ul><li><a href="http://money.cnn.com/2007/02/19/news/companies/xm_sirius/index.htm?postversion=2007021916">http://money.cnn.com/2007/02/19/news/companies/xm_sirius/index.htm?postversion=2007021916</a</li></ul>

daveak05

yeh, Sirius subscriber gains were still skyrocketing, while XM's had flattened out somewhat. That was the real writing on the wall. There was enough to go around, as most new subscribers were just that, new. Not yet a case of one taking customers from the other. Oh well, with just one now, watch the prices go way up. Does the word monopoly mean anything to you? : )

Snark

Both companies are still years away from a profit and would require recapitalization in less than 18 months or they'd each run out of cash. Sirius has a somewhat higher market cap and its growth isn't slowing as much as XM's.

But to say Sirius is better than XM is sort of like saying Paris Hilton is better than Lindsay Lohan. They both get your attention but they're each heading over a cliff. This merger gives the combined entity a chance to survive.

Bob W.

SIRI shareholders will own 53% of the combined company.

daveak05

XM had higher revenue and significantly less OS(268 million shares vs Sirius 1.4 billion). You can see why XM couldn't and wouldn't acquire Sirius and take on all those worthless shares. This is bad for shareholders, as they are already stretched to the limit. It will be a long time, if ever, that Sirius revenues(not to mention net income) justifies that kind of grotesque OS. I wouldn't want to touch it with a 300 ft satellite tower!