New York — Consumer choices and corporate cost savings were the two primary reasons cited today by XM and Sirius Satellite Radio execs for the proposed merger of the two companies; however, the merger will create several technical and programming issues that need to be overcome.
The deal, expected to close later this year if shareholder and federal approval is received, will create a $13 billion company, said Mel Karmazin, Sirius’ CEO, and proposed CEO of the new — as yet unnamed — company, and could generate between $3 billion and $7 billion in savings. The merger creates a company of 14 million subscribers and $1.5 billion in revenues based on analyst estimates.
XM chairman Gary Parsons, who will hold the same position with the new company, said these savings would be used to help grow the business and offset the significant fixed costs and accumulated debts that XM and Sirius must pay off. XM CEO Hugh Panero will continue in his current position until the deal is finalized. Panero did not participate in the conference call announcing the merger, but he was praised by Parsons for his work.
Each company will continue to operate independently until the deal is finalized with a particular emphasis being placed on developing radios that will receive both transmissions. A time frame for the completion of these products is not known. The companies will spend the coming months figuring out how to combine their respective exclusive programming.
“The benefit for subscribers is offering the best content from both companies,” Karmazin said, adding the combined company will be better positioned to compete against iPods, HD Radio and other upcoming audio technologies.
However, no details were given on what Parsons or Karmazin expect to have available if the deal is closed.
Consumers will have the opportunity to ‘pick and choose the channels and content they want on a more a la carte basis.’ The merger will also create improved products such as real-time traffic and rear-seat video, they said.
A combined company will be more attractive to advertisers, Parsons said, pointing out that XM and Sirius barely scratched the surface when it comes to selling commercials. He said the AM/FM radio market was $20 billion in 2006 of which only $70 million went to XM and Sirius.
Parsons and Karmazin were confident the merger would be approved by the FCC.
The FCC said in the past that it would examine any merger proposals from XM and Sirius. FCC chairman Kevin Martin acknowledged earlier this year that there exists a prohibition on one company owning both satellite radio licenses, although analysts have noted that XM and Sirius could ask the FCC to modify their licenses to permit a merger.
“Both companies did their homework on this issue,” Karmazin said.