SATELLITE RADIO DEAL STRIKES DISCORD IN CANADA Grant Robertson – Globe and Mail The marriage of satellite radio giants XM and Sirius is being touted as a friendly merger of equals in the U.S., but the situation looks much different in Canada, where the two companies disagree over whose operation is worth more.
XM Canada and Sirius Canada Inc. have invested hundreds of millions of dollars pursuing independent strategies at home, including more than 70 exclusive deals, which could lead to disputes over how ownership of the combined Canadian company should be divided up.
After years of mounting losses, New York-based Sirius Satellite Radio Inc. and Washington, D.C.-based XM Satellite Radio Holdings Inc. agreed this week to combine forces in a $4.9-billion (U.S.) merger that will almost certainly lead to the consolidation of their Canadian affiliates.
While the U.S. companies have agreed to a 50-per-cent split of the operation, the Canadian companies are at odds.
Sirius Canada, which is privately owned by the CBC, Standard Broadcasting and its U.S. parent, sees itself as the most valuable piece of the puzzle.
Its list of 300,000 paying subscribers is roughly three times larger than XM's. “It's not a business of equals in Canada, we're significantly ahead of them,” Sirius Canada CEO Mark Redmond said.
“I'm not saying what a potential Canadian deal would look like because we're not even remotely close to that yet. But we are the market leader in Canada by a significant margin and we have no plan of letting up. You can't use the same equation.”
However, XM Canada argues it is bringing one of the biggest assets to the table.
The two companies have signed more than 70 different agreements with sports leagues, auto makers, airlines and phone companies in the past year to expand their businesses. At the top of the list is a $69-million (U.S.) contract XM Canada signed with the National Hockey League for the rights to broadcast thousands of games over the next eight years.
The premium paid for the exclusivity of that investment and other assets, such as offices, broadcast studios and satellite retransmitters, could prompt the owners of XM Canada to argue for a bigger piece of the ownership stake.
At $69-million, the long-term NHL contract represents more than one-fifth of the present market value of Canadian Satellite Radio Holdings Inc., the publicly traded company operating XM Canada.
“We paid a lot,” said John Bitove, CEO of Canadian Satellite Radio Holdings Inc. “These are some of the ramifications that we'll have to take into account if we decide to pursue the road as they are in the U.S.... If we even have a choice.”
Should American regulators approve the deal, it will force the Canadian affiliates to consolidate, since they rely on the U.S. parents for most of their programming and all of their satellite infrastructure.
Though XM Canada paid a premium for the NHL deal, Mr. Redmond doubts it's worth that price.
“I think you could argue what the value of the potential asset is,” Mr. Redmond said. “What they have is the use of the NHL logo and the exclusive rights to broadcast NHL games on satellite radio specifically. I can listen to every Leaf game at home for free on AM radio.”
The two satellite radio companies launched in Canada in late 2005 and have battled substantial startup losses in building a customer base. Satellite radio customers pay about $15 (Canadian) a month.
In the U.S., XM and Sirius have lost a combined $7-billion (U.S.) over the past eight years and are banking that a merged company will have a better chance of becoming profitable amid new competition from Internet radio and iPods.
Sirius CEO Mel Karmazin and XM chairman Gary Parsons told analysts on a conference call to explain the deal Tuesday that billions of dollars of savings will result from the merger by cutting back administrative, legal and corporate costs.
However, Mr. Karmazin said the two companies will continue broadcasting separate signals for the foreseeable future.
The companies also plan to speed up development of dual receivers, which have been designed but have not made it to market.
The proposed merger requires regulatory approval in the U.S, which is not expected until late 2007 or early 2008. If the merger goes ahead, there may be little Canadian regulators can do to block the consolidation, since one company will likely relinquish its licence as the assets are combined. |