The long anticipated merger between XM Satellite Radio and Sirius Satellite Radio was announced today, with the deal being an equal shares agreement. The companies will be combined in a tax-free, all-stock merger of equals with a combined enterprise value of approximately $13 billion, which includes net debt of approximately $1.6 billion.Under the terms of the agreement, XM shareholders will receive a fixed exchange ratio of 4.6 shares of SIRIUS common stock for each share of XM they own. XM and SIRIUS shareholders will each own approximately 50 percent of the combined company.
Via press release, the companies touted the following advantages to the merger:
The combination creates a nationwide audio entertainment provider with combined 2006 revenues of approximately $1.5 billion based on analysts' consensus estimates. Today the companies have approximately 14 million combined subscribers. Together, SIRIUS and XM will create a stronger platform for future innovation within the audio entertainment industry and will provide significant benefits to all constituencies, including:
- Greater Programming and Content Choices -- The combined company is committed to consumer choice, including offering consumers the ability to pick and choose the channels and content they want on a more a la carte basis. The combined company will also provide consumers with a broader selection of content, including a wide range of commercial-free music channels, exclusive and non-exclusive sports coverage, news, talk, and entertainment programming. Together, XM and SIRIUS will be able to improve on products such as real-time traffic and rear-seat video and introduce new ones such as advanced data services including enhanced traffic, weather and infotainment offerings.
- Accelerated Technological Innovation -- The merger will enable the combined company to develop and introduce a wider range of lower cost, easy-to-use, and multi-functional devices through efficiencies in chip set and radio design and procurement. Such innovation is essential to remaining competitive in the consumer electronics-driven world of audio entertainment.
- Benefits to OEM and Retail Partners -- The combined company will offer automakers and retailers the opportunity to provide a broader content offering to their customers. Consumer electronics retailers, including Best Buy, Circuit City, RadioShack, Wal-Mart and others, will benefit from enhanced product offerings that should allow satellite radio to compete more effectively.
- Enhanced Financial Performance -- This transaction will enhance the long-term financial success of satellite radio by allowing the combined company to better manage its costs through sales and marketing and subscriber acquisition efficiencies, satellite fleet synergies, combined R&D and other benefits from economies of scale. Wall Street equity analysts have published estimates of the present value of cost synergies ranging from $3 billion to $7 billion.
- More Competitive Audio Entertainment Provider -- The combination of an enhanced programming lineup with improved technology, distribution and financials will better position satellite radio to compete for consumers' attention and entertainment dollars against a host of products and services in the highly competitive and rapidly evolving audio entertainment marketplace. In addition to existing competition from free "over-the-air" AM and FM radio as well as iPods and mobile phone streaming, satellite radio will face new challenges from the rapid growth of HD Radio, Internet radio and next generation wireless technologies.
Combining Sirius and XM would result in a single satellite radio operator with more than 13 million total subscribers. A deal would also marry Sirius content, such as Howard Stern, Frank Sinatra and Nascar with XM's Oprah Winfrey, Bob Dylan and Major League Baseball. As reported by the NY Post:
In a note on Friday, Bear Stearns analyst Robert Peck speculated that Sirius and XM needed to move quickly before their window of opportunity closed.
Gaining regulatory approval "could take up to 15 months; hence, we think any proposed deal needs to be announced by the end of March to close by mid-2008," Peck wrote.