Sirius and XM Satellite Radio Merger?
Rumors of a Sirius+XM Satellite Radio merger have been in existence for almost as long as the companies started broadcasting. However, recent comments by executives at both companies have caused industry watchers to think that the “talk” may be getting real. The satellite radio sector is experiencing continued losses, mounting subscriber acquisition costs, lackluster subscriber gains, and increasing costs for content. This translates into ripening conditions for a merger.
Sirius Satellite Radio chief Mel Karmazin commented recently that “mergers often lead to creating shareholder value,” and pointed to a softened regulatory landscape. And late last week, XM Satellite Radio chairman Gary Parsons alluded to a potentially generous regulatory review, one that would broaden the market definition beyond satellite radio.
The recent chatter has taken on a new complexion given the retail sales struggles and slowing pace of subscriber additions at both companies. Some analysts project a combination of the two could generate $7 billion in cost savings on infrastructure, marketing and content. Other comments have merger theorists bubbling. FCC commissioner Robert McDowell said that a satellite radio merger would be an “an intriguing idea,” though it remains unclear how strict his review would ultimately be. And both Karmazin and Sirius CFO David Frear have continued to point to the cost savings and investor benefits that a merger would provide. Meanwhile, Sirius and XM have softened their year-end subscriber forecasts, and holiday retail activity has been sluggish for both providers. Both Sirius and XM stocks have risen on the speculation.
Speaking at an investor conference in New York last week, XM Chairman Gary Parsons made the bold statement that the regulatory hurdles that have been a key barrier to a deal thus far are significantly lower now. “We are operating in a much larger marketplace than satellite radio,” he said. Parsons’ comments came a day after Sirius CEO Mel Karmazin said that he wouldn’t rule out a deal with XM. Earlier the same day, Sirius CFO David Frear said that a deal between the two companies would provide ample cost savings as well as benefits to consumers and investors.
The executives’ comments sent shares in both companies up as much as 3 percent, before backing off. Sirius closed trading on December 7th up 5 cents, or 1.3 percent, to $3.88, while XM rose 11 cents, or less than 1 percent, to $14.81.
A major factor that could decide whether the companies merge is whether a merger of Sirius and XM would be viewed solely through the lens of the satellite radio industry or take into consideration terrestrial radio, iPods and online radio as part of the competitive marketplace. In a recent report, Stifel Nicolaus analyst Kit Spring put the probability of a Sirius-XM merger attempt within the next 18 months at 75 percent, and the probability of getting approval at 60 percent.