Radio's space race may be over.
The nation's two satellite pay-radio services - market leader XM Satellite Radio Holdings Inc. and rival Sirius Satellite Radio Inc. - said yesterday that they intend to join forces, stemming a flood of red ink in a $4.57 billion stock deal that will result in a single service with 14 million subscribers.
But the merger must clear several significant regulatory hurdles. That could prove as difficult as hitching Howard Stern with Oprah Winfrey. (Stern is a big draw at Sirius, and Winfrey has a channel exclusively on XM.)
Determining government approval will be the same critical issue that nearly all media companies face these days: What exactly constitutes a media monopoly when entertainment and information is available to consumers from a growing number of sources and technologies?
"This is a merger proposal that merits the utmost scrutiny ... as to its effect on consumers of pay radio, as well as how this proposal impacts broader policy goals of ensuring diversity, localism, and innovation in radio service generally," said Rep. Edward J. Markey, the Massachusetts Democrat who chairs the House Subcommittee on Telecommunications and the Internet.
Federal Communications Commission Chairman Kevin J. Martin predicted "the hurdle here ... would be high" because the FCC originally ruled against allowing a single company to hold the only satellite radio license.
But much has changed since the FCC made that call in the 1990s. And XM and Sirius will argue that having two satellite radio outfits is not what kept subscription prices in check and encouraged innovation. They will say that happened because they compete with broadcast radio, iPods, Internet and mobile phones in an increasingly crowded media marketplace.
XM Chairman Gary Parsons is to become chairman of the new company, while Sirius chief executive Mel Karmazin will be CEO. They will serve on a board with 10 others, including members from General Motors Corp. and Honda Motor Co.
Hugh Panero, XM's CEO, will remain until the deal closes, which the companies say could come as soon as the end of 2007.
The transaction is billed by XM and Sirius as a tax-free, all-stock merger of equals, resulting in combined enterprise value of about $13 billion, including debt of roughly $1.6 billion.
In fact, Sirius is buying half of XM for $4.57 billion in stock. XM shareholders will receive 4.6 shares of Sirius common stock for each share of XM they own.
