(Associated Press via NewsEdge) XM Satellite Radio Holdings and Sirius Satellite Radio, rivals in the fledgling satellite radio industry, have agreed to combine in a deal that investors hope will result in lower costs, assuming it overcomes significant regulatory hurdles.
The companies billed the deal as a merger of equals, with shareholders of both companies owning approximately 50% of the combined entity. However, Sirius will be giving $4.57 billion of its stock to XM shareholders, a substantial premium to the value of their shares.
Sirius' CEO Mel Karmazin will lead the combined company, and XM's CEO Hugh Panero will stay on only until the deal is closed. XM chairman Gary Parsons will remain in that role.
The deal faces substantial obstacles in Washington, including a Federal Communications Commission provision that specifically forbids the two companies to combine.
Analysts have noted that the FCC could change the rule, but in a statement FCC chairman Kevin Martin said that the 'hurdle' would be 'high' to prove that the deal would be in the public interest.
'The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices,' Martin said.
A combination would also have to meet antitrust approval from the Department of Justice.
The companies are expected to argue that they compete not only with each other but also with traditional radio and a growing base of digital audio sources such as iPods, mobile phones and non-satellite digital radio.
Investors and analysts have been speculating about a deal for months, and are hoping that the cost savings that would result would make up for softening retail demand for satellite radio units.
A Bear Stearns analyst said in a research note that a merger would have a good chance of overcoming regulatory obstacles.
Other analysts remain less sure. Sanford C. Bernstein analyst Craig Moffett said he gives the deal a '50-50' chance of passing regulatory muster.
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