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XM and Sirius announce merger deal

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Saturday, February 24, 2007

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On 19 February 2007, XM Satellite Radio and Sirius Satellite Radio announced a move that will change the face of satellite radio in the United States and Canada: XM and Sirius will be merging, creating a single satellite radio provider.

Multi-million dollar losses, combined with increasing competition from internet radio, downloadable music, and HD radio were factors in this merger.

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Mel Karmazin, CEO of Sirius Satellite Radio, described the problem: "We don't want to take subscribers from XM. We won't make money that way. We need new subscribers." Likewise, XM executives say they can't succeed by stealing Sirius subscribers. This leaves both companies with the problem of attracting new customers and distinguishing their brand, while at the same time trying to convince potential customers to pay $12.95 a month for radio, something that people are used to getting for free. Even if one company were to force the other out of the marketplace, the remaining company would have won a Pyrrhic victory, without enough capital remaining to take advantage of the situation.

The solution: make a deal now, while both companies are both strong and in a position to expand their technologies and services. That's exactly what they plan to do: In press releases and news postings on both of their web sites, both companies have pledged to make the combined company better than either service by itself. "You've heard of 1+1=3," Karmazin said during an invester conference call, "that's what this is."

Pending approval of the deal, each share of XM stock will be replaced with 4.6 shares of Sirius. Each company's stockholders will retain approximately 50% of the joined company. Sirius CEO Mel Karmazin will retain his CEO title in the new company, and XM chairman Gary Parsons will retain his. XM CEO Hugh Panero will retain his position until the merger is complete, which should happen near the end of 2007.

Timeline of events

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February 21, 2007

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  • US Representative Bob Goodlatte (R-Va) is calling for a hearing on the merger.

February 20, 2007

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  • A public conference call between XM and Sirius occurred on Feb 20, 2007 at 8:30AM EST. A PDF presentation of the call is available here. The webcast is currently available at the Sirius Investor Site.

Opposition

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Several consumer and community groups have come out in opposition to the merge.

  • A group of law students formed an organization known as the Consumer Coalition for Competition in Satellite Radio, with the purpose of stopping the merger. The C3SR is composed of law students, all of whom subscribe to XM or Sirius Satellite Radio. Their major argument is that this would create a monopoly in the satellite radio, which would increase prices, reduce consumer choice, and subsidize unwanted services. Chris Reale, a founder of C3SR, said "If this merger is permitted to go forward, there will be no protection of competition and there will be no competitors."

Support

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In the initial merger press release, Sirius and XM asserted that satellite radio is part of the audio entertainment industry rather than an industry of its own, and as such competes with traditional terrestrial radio, HD Radio, iPods and on-line radio. The resultant company will be subject to regulation pre- and post-merger by the FCC, Federal Trade Commission, Securities and Exchange Commission, Department of Justice and possibly other federal organizations. The FCC has issued a statement saying that a merger is not without its hurdles, and that they will want assurances that price, quality, and consumer choice will be protected.

Based on C3SR's blog posts and Internet forum posts on various fan sites, it is apparent that many subscribers are looking forward to the deal. Speculation abounds on what the new receivers will look like, and how customers' existing hardware will fit in to the new plan.

While many of the facts concerning the merger are not yet known: what the new company will be called, exactly which programming the new company will carry, and when customers will need to upgrade their hardware, one thing is for certain: Satellite radio in North America is in for one big change.

Further reading

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We will follow the progress of the merger in In depth: XM and Sirius merger. Check back often to see the latest news.

Sources

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