Satellite radio giants to merge

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NEW YORK - XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. have agreed to merge, the two companies said Monday.

The deal would consolidate the only two companies in the emerging business of subscription-only satellite radio, and it is sure to face tough scrutiny from federal regulators. Investors and analysts have been speculating about a deal for months.

The two companies said in a statement that Sirius CEO Mel Karmazin would become chief executive of the new company and XM Chairman Gary Parsons would remain in that role. XM CEO Hugh Panero will remain to oversee the closing of the deal, they said.

The deal would face significant regulatory hurdles in Washington, including a Federal Communications Commission rule that clearly states that one satellite radio provider cannot buy the other one. That rule could be waived, however.

A combination also would have to meet antitrust approval from the Department of Justice. The companies are expected to argue that they compete not only with each other but also with a growing base of digital audio sources such as iPods, mobile phones and nonsatellite digital radio.

XM and Sirius have both posted significant financial losses as they built up their programming lineups and recruited subscribers. Both stocks declined more than 40 percent last year on concerns about their continued growth in subscribers and softness in the retail market, but investors have held out hopes that a merger could bring costs down significantly.

Shareholders of XM and Sirius would each own about 50 percent of the combined company. XM shareholders would receive 4.6 shares of Sirius stock for each share of XM they own.

That would value XM shares at $17.02 each, based on Friday's closing prices, representing a premium of 22 percent from XM's closing value of $13.98 Friday. Markets were closed Monday for the Presidents Day holiday.

The companies didn't say what the new company would be called, though they described it as a merger of equals.

On Friday, a Bear Stearns analyst said in a research note that a merger would have a good chance of overcoming regulatory obstacles.

Other analysts remain less sure. Sanford C. Bernstein analyst Craig Moffett said he gives the deal a "50-50" chance of passing regulatory muster.


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