Satellite radio operators XM and Sirius have announced a definitive $13 billion merger agreement which would cut the number of satellite radio operators in the U.S. from two to one. Under the terms of the agreement, Mel Karmazin will become CEO of the combined company, while XM chair Gary Parsons will take on the role of Chairman; XM shareholders will receive 4.6 shared os Sirius stock for every share of XM stock they own. XM and Sirius will each own about 50 percent of the combined company under what the firms characterize as a "merger of equals."
"This combination is the next logical step in the evolution of audio entertainment," said Karmazin. "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.
In a joint statement, Gary Parsons and Hugh Panero, CEO of XM Satellite Radio, said: "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."
According to the companies, the combined operation will be able to offer customers wider programming and content selections (just think—Oprah and Stern on the same service!), cut costs by eliminating redundant operations, and thereby improve value to investors. The new company will also be able to offer one-stop shopping to car manufacturers and consumer electronics developers looking to integrate satellite radio into their product offerings.
XM and Sirius are positioning the merger not as an effort to sew up the satellite radio market—in which they would be the de facto sole operator in the U.S.—but as a way to effectively compete with other media offerings being made available to consumers, including Internet downloads, mobile streaming media, HD terrestrial radio, and traditional over-the-air AM and FM broadcasting, as well as Wi-Fi and WiMAX technologies.
The merger is subject to approval by the companies’ shareholders, and must also obtain regulatory approval. The latter might prove troublesome, and could draw out the merger process for an indefinite period of time. FCC chair Kevin Martin noted as recently as last month that a prohibition exists which prevents a single company from owning both satellite radio businesses—so, at the very least, FCC rules would have to be changed before the merger can go through. Similarly, antitrust authorities might have a few words to say about it; a similar merger between satellite television operators DirecTV and EchoStar was shot down in 2002 on anticompetitive grounds.