KARMAZIN SAYS MERGER ‘VERY DOABLE’ Jeffrey Yorke – Radio and Records The proposed $13 billion, tax-free, all-stock exchange “merger of equals” between Sirius and XM satellite radio companies is “very doable with multiple benefits for all stakeholders,” said Sirius CEO Mel Karmazin. And the deal, which must clear some significant regulatory hurdles, has a “solid basis for approval,” he told investors during a 60-minute plus teleconference with XM chairman Gary Parsons.
The pair made their first joint appearance in what will no doubt be one of several in their attempt to merge two rivals with an accumulated debt of $6 billion into one healthy audio provider that will benefit consumers with a vast array of programming content. Karmazin and Parsons argued that together a single company can speed delivery of a interoperable receiver chip set that will allow subscribers to select from a huge ala cart menu of audio programming and backseat video. Both stressed, however, that satellite’s monthly fee, which has been $12.95 per month for each service, is not likely to increase because satcasters must compete with free terrestrial radio, MP3 players in vehicles and iPods.
“What does this merger mean for consumers?” asked Parsons. “No doubt they will be big winners in this. They will get more of what they want, more diverse programming. And more on an a la carte basis.”
Karmazin and Parsons made it clear to skeptical analysts who reminded them that the NAB has already rejected the merger proposal, that while satellite radio broadcasting has grown to about 14 million subscribers in only five years -- faster than both satellite television and cell telephone use -- it still reaches only about 10% of its possible audience.
“The long term success of the company is based on growing the subscriber base,” noted Parsons. “Satellite radio is still a small player by comparison but we see a lot of ability for growth.”
It became clear that, for regulators, the satcasters will paint a picture of a highly competitive landscape with a combined company, but they still have to compete with a slew of other, mostly free audio services and not just free, over-the-air free terrestrial radio. But in the end, Karmazin and Parsons believe approval will go their way.
Expect Sirius and XM to work hard for not just regulatory approval but also lobby for Congressional approval. Karmazin acknowledged that they had already had contact with a number of congressional representatives “in the last 12 hours” and because Congress is in recess this week, the satcasters plan to “reach out to them within the next week.”
“I believe the chances of approval are greater than 50-50. I would not have gone to Sirius’s board and recommended the merger if I didn’t think that it would be greater than 50-50,” Karmazin said confidently.
"We would not have entered into it if we were not confident that we couldn’t give the benefit to consumers,” Parsons added. “The broader marketplace that there is, the more this will be seen as in the public interest. We believe this is the right thing to do not only for stockholders but for consumers, too,” he added. “I think there is a very good probability this will be accepted.”
While pointing out that satellite radio has “enormous fixed costs,” Karmazin said the combined companies – which he expects to come together by year’s end, will not save on cutting duplicate programming as much back office expenses, accounting, lawyers, etc. No decision, he said, has been made as to the name of the new company or whether the operation will be based in New York where Sirius is currently located, or Washington, D.C., where XM is housed. If the deal wins regulatory approval but one of the companies boards rejects the merger plan, a $175 million break up fee kicks in, Karmazin told analysts.
At 11 a.m. EST, some 134.6 million shares of SIRI had traded hands, up a quarter or nearly 7% to $3.95 while almost 51 million shares of XMSR were traded, up $1.77 or nearly 13% higher to $15.75 a share.
Nearly all terrestrial radio stocks were trading down in mid-morning trading. |