New York — Facing recent Wall Street jitters, Sirius Satellite Radio announced financial guidance for 2009 today, assuming its merger with XM is completed.
Sirius expects net synergies, minus costs to achieve these synergies, to total $400 million for the merged company in 2009. Adjusted EBITDA for the combined company is expected to be approximately $300 million in 2009. Adjusted EBITDA is net income before interest and investment income and expenses and other expenses (depreciation and non-cash stock compensation expenses).
The combined company is expected to achieve positive free cash flow, before satellite capital expenditures, for the full year 2009.
Sirius CEO Mel Karmazin said, “The upside potential from this merger is significant. In addition, the synergies, adjusted EBITDA and free cash flow are expected to continue to grow in subsequent years, and we look forward to providing more detail of this growth in coming months.” Karmazin would become CEO of the combined Sirius and XM upon their merger.
The announcement follows a pessimistic report from Goldman Sachs earlier this month that sent Sirius and XM stocks tumbling. Goldman Sachs estimated a post merger Sirius/XM might need to refinance at least $1 billion in debt.
Sirius noted in today’s announcement that under the structure of the planned merger, Sirius would be the surviving public parent company and XM would become a subsidiary of Sirius. As a result, the preponderance of XM’s existing debt will require refinancing in connection with the merger, resulting in incremental interest expenses.
The merger is still awaiting a ruling from the Federal Communications Commission (FCC) and satisfaction of other applicable conditions, including the refinancing of certain XM debt, said Sirius. A ruling by the FCC is expected shortly, and FCC chairman Kevin Martin reportedly recommended the four other FCC Commissioners approve the merger. The FCC would neither confirm nor deny these reports.
In March, the U.S. Department of Justice approved the merger, and Sirius and XM stockholders have also given the merger a green light.
Today’s guidance from Sirius’ assumes the merger will be consummated in the third quarter of 2008, that XM will incur certain expenses in refinancing its debt, that the combined company will realize additional advertising and subscriber revenue synergies from a merger, and that the combined company will achieve cost savings and efficiencies in nearly all aspects of its operations.
Last week, XM said it reached an agreement with 95 percent of the holders on $400 million in 1.75 percent senior convertible notes. Under the agreement, XM would pay a higher interest rate of 10 percent, but the note holders agreed not to assert any claim that the proposed merger will trigger a "Fundamental Change" clause under the existing agreement.