WINFREY NEW YORK (Reuters):
Sirius Satellite Radio agreed to buy larger United States rival XM Satellite Radio for US$4.6 billion in stock on Monday, in a deal that gives all subscribers access to entertainers such as Oprah Winfrey and shock-jock Howard Stern.
The transaction, which faces regulatory scrutiny and objections from terrestrial radio companies, gives XM shareholders 4.6 Sirius shares for each XM share held.
The deal has Sirius paying about US$4.6 billion in stock for XM, or a 21.7 per cent premium to XM's closing share price of US$13.98 last Friday, based on shares outstanding in the latest regulatory filings.
Veteran media executive Mel Karmazin, currently Sirius' CEO, will lead the new company as CEO, while Gary Parsons, now chairman of XM, will hold the same position in the new company. Hugh Panero, XM CEO, will continue in his current role until the merger closes.
The merger would create a company with about US$1.5 billion in 2006 revenue and an enterprise value of US$13 billion, including US$1.6 billion in net debt.
"This combination is the next logical step in the evolution of audio entertainment," said Karmazin in a statement. He said it will create "unprecedented choice for consumers."
The deal will face tough regulatory scrutiny. The satellite radio licences prevent one entity from owning them; however, Federal Communications Commission (FCC) chairman Kevin Martin said last month that its rules are open to change.
"I think it's a close call, but more likely than not I think the Justice Department and the FCC will approve it," said Blair Levin, an analyst at Stifel Nicolaus & Amp. Co. and a former FCC chief of staff during the Clinton administration.
The National Association of Broadcasters, which represents local broadcast radio stations, immediately criticised the tie-up because it would concentrate the licences into one company and accused them of seeking a government bailout. "When the FCC authorised satellite radio, it specifically found that the public would be served best by twocompetitive nationwide systems," said NAB spokesman Dennis Wharton.
"Now, with their stock prices at rockbottom and their business model in disarray because of profligate spending practices, they seek a government bailout to avoid competing in the marketplace," he said.
