Sirius Satellite Radio Inc.’s $4.57 billion takeover of XM Satellite Radio Holdings Inc., announced on 19 February, faces opposition from regulators, lawmakers and broadcasters as it combines the only satellite radio services.
The terms value Washington-based XM at $17.02 a share, 22 % more than its 16 February close of $13.98. XM shares jumped 25% to $17.43 in U.S. trading before the opening of the Nasdaq Stock Market. Sirius shares rose 14 % to $4.20.
US rules bar such a merger, US Federal Communications Commission Chairman Kevin Martin has said. Representative Edward J. Markey, chairman of the US House telecommunications and Internet subcommittee, will scrutinize the plan. The National Association of Broadcasters is lobbying against the deal. Sirius and XM want to stem almost $7 billion in losses from costs to attract listeners and high-priced talent including radio hosts Howard Stern and Oprah Winfrey.
“The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices,” Martin said yesterday in an e-mailed statement. “If the market is defined to include terrestrial radio, including High-definition radio, Internet radio and MP3 players, then we believe the deal will be approved,” wrote Credit Suisse analyst Bryan Kraft, in a note to investors today. “We believe the reality is that satellite radio does compete with these alternatives,” the New York-based analyst said. He rates Sirius shares “outperform.”
“There are a lot of competitors here,” said Tom Watts, a Cowen & Co. analyst in New York, in an interview today. He also cited digital radio from terrestrial broadcasters, streaming music to mobile phones and digital music players as examples.
The National Association of Broadcasters, the Washington- based lobbying arm of radio and TV station owners, called on the government to reject the deal.“Given the government’s history of opposing monopolies in all forms, NAB would be shocked if federal regulators permitted a merger of XM and Sirius,” spokesman Dennis Wharton said in an e-mailed statement.
Markey, a Democrat from Massachusetts, urged “the utmost scrutiny by federal policy makers and regulators.”Under the terms of the accord, which the companies describe as a merger of equals, XM investors will receive 4.6 shares of New York-based Sirius common stock for each share they own. Shareholders of each will own about 50 percent of the combined company.
Mel Karmazin, chief executive officer of Sirius, will be chief executive officer, and Gary Parsons, chairman of XM, will continue as chairman.The merged group will try to cut costs by negotiating new programming agreements and deals with automakers that install the devices, said David Bank, an RBC Capital Markets analyst in New York who rates XM “outperform” and Sirius “sector perform.”“To make themselves stronger in the long term, they really need to benefit from the synergies a combination offers them,” said David Bank. “I see it as a huge positive.”
Watts of Cowen said Sirius, though smaller than XM, grew faster last year.Sirius has been executing better over the last year,” Watts said. “They have better name recognition because of the Howard Stern deal.