HITS Daily Double
"We look forward to sharing the benefits of the exciting new growth oppor-tunities this combination will provide with all of our stakeholders."


Will Howard and Oprah Orbit Hand in Hand? That’s Up to the FCC and Their Antitrust Pals
XM and Sirius are getting hitched—assuming the FCC gives its blessing. The two satellite radio carriers announced on Monday that they will join forces in a tax-free, all-stock merger of equals with a combined enterprise value in the neighborhood of $13 billion, which includes net debt of approximately $1.6 billion. If approved, the combination will an entity with combined 2006 revenues of approximately $1.5 billion and 14 million current subscribers. The combined company, which will achieve cost synergies of $3-7 billion, according to analysts’ estimates, plans to offer subscribers their choice of channels and content.

But you won’t be reprogramming your channels anytime soon. For now, Howard and Oprah, Disorder and Deep Tracks, will remain on their separate systems. The deal is subject to approval by both companies' shareholders, antitrust agencies and, of course, the FCC. Pending regulatory approval, the companies expect the transaction to be completed by the end of 2007. They’ll continue to operate independently until the deal is finalized.

Sirius CEO Mel Karmazin and XM Chairman Gary Parsons will retain their present titles in the combined company. XM CEO Hugh Panero will continue in his current role until the anticipated close of the merger. The new board of directors will consist of 12 directors: Karmazin and Parsons, four independent members designated by each company and one representative each from GM and American Honda.

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% of the combined company.

Said Parsons and Panero in a joint statement: "We are excited for the many opportunities that an XM and Sirius combination will provide consumers. The combined company will be better positioned to compete effectively with the continually expanding array of entertainment alternatives that consumers have embraced since the FCC first granted our satellite radio licenses a decade ago."

Karmazin, meanwhile, called the merger "the next logical step in the evolution of audio entertainment. 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. We look forward to sharing the benefits of the exciting new growth opportunities this combination will provide with all of our stakeholders."

For us Earth dwellers, the prospect of getting twice as many channels is tempting, so we’re hoping the combined company will opt for expanded programming diversity in the channel lineup rather than choosing to condense it in order to avoid redundancy. Go for the long tail, Mel and Gary—think as if you were music fans; y’know, the people who are paying for your respective services. Make it an ongoing contest of parallel channels from the two sides to see which can come up with the deepest deep tracks, for instance.

It’ll be fascinating to see how this plays out, but for now, as Tom Petty so frequently sings on Sirius Classic Vinyl and its XM equivalent, the waiting is the hardest part…especially for Mel and Gary.