Wed, Feb 21, 2007 - Page 5 News List

Pay-radio firm's purchase of rival to face US scrutiny

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Sirius Satellite Radio Inc's agreement to buy rival XM Satellite Radio Holdings Inc for US$4.57 billion in stock is a bet that US regulators will alter rules that bar the only two pay-radio companies from combining.

The terms value Washington-based XM at US$17.02 a share, 22 percent more than its US$13.98 close on Feb. 16. New York-based Sirius closed at US$3.70.

US Federal Communications Commission (FCC) Chairman Kevin Martin said a merger combining the only two satellite radio services would face a thorough review. Sirius and XM are trying to stem almost US$7 billion in losses from costs to attract listeners and high-priced talent including Howard Stern and Oprah Winfrey. They say they also compete with mobile phones that play music and Apple Inc's iPod.

"The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices," Martin said on Monday in a statement.

The National Association of Broadcasters (NAB), 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," NAB spokesman Dennis Wharton said in a statement.

Representative Edward Markey, chairman of the US House subcommittee of telecommunications and the Internet, also 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 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 CEO, and Gary Parsons, chairman of XM, will continue as chairman, the companies said on Monday.

The combined companies would attempt to cut costs by negotiating new programming agreements and deals with automakers that install the devices in cars, said David Bank, an analyst at RBC Capital Markets 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," Bank said. "I see it as a huge positive."

The companies signaled their negotiating stance with regulators by saying they compete in a broad media landscape that includes the iPod, mobile phones and the Internet.

"What this is really about is war," said Karmazin, who spent four decades in the radio industry and was president of Viacom Inc before joining Sirius in November 2004.

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