TALK PERSISTS OF NEED TO MERGE XM, SIRIUS Paul Bond – The Hollywood Reporter
Pull up the six-month performance of companies making up The Hollywood Reporter/Bloomberg 50 Entertainment Stock Index and a tiny pattern emerges: Dead last is XM Satellite Radio, and third from last is Sirius Satellite Radio.
It wasn't supposed to be like this. When Howard Stern said in October 2004 that he would join Sirius, shares rose 50% over the next six weeks. When Mel Karmazin became CEO that November, his compensation package gave him options on 30 million shares. Still, he considered shares so cheap he told Wall Street, "You should assume that within the next day I will be personally buying more stock in Sirius."
But Sirius shares have sunk from $4.72 that day to $3.75 on Aug. 14, and XM shares dropped from $34.65 to $11.01 in the same time frame.
The rapidly declining share prices have some investors calling for a quick fix -- namely, that the two companies merge. CNBC commentator Jim Cramer wrote on his site TheStreet.com: "Mel, as CEO of Sirius Satellite Radio, it's time to make your move on a merger. Right now."
Cramer and others point to obvious benefits, including that the two no longer would need to outdo each other by offering large rebates to consumers who buy the necessary radio hardware and that Sirius and XM could end the bidding war for high-priced talent.
As to the latter point, Sirius ponied up $500 million for Stern and $220 million for the NFL. XM has paid $650 million for Major League Baseball and $55 million for Oprah Winfrey. NASCAR, which XM paid about $15 million for in a five-year deal that is up at year's end, just switched to Sirius for $107.5 million. The two also have lined up Eminem, 50 Cent, Martha Stewart, the NBA and the NHL, to name a few.
Such expenses have led to massive losses -- $667 million at XM last year and $863 million at Sirius -- even as subscriber growth has kept on trucking. Sirius has gone from 30,000 subs in 2002 to 4.7 million as of July, while XM has grown from 360,000 to 7 million in the same frame.
Investors who have been calling for a merger are taking their cues mostly from Sirius, as Karmazin and chief financial officer David Frear have said that a combined Sirius and XM makes sense. Karmazin said this year that he "would love to buy XM."
Each executive has wondered aloud whether such a move would gain regulatory approval because of competitive concerns. Many experts think it would.
"It's very doable," said Kenneth Ferree, a partner in the Entertainment and Media Practice Group of Sheppard Mullin Richter & Hampton in Washington.
Ferree steered four major FCC merger reviews, including the failed attempt at merging EchoStar and DirecTV. But he said that the satellite TV business is different enough from satellite radio to warrant approval. |