Better Than 50-50 Chance Merger Will Get Regulatory Okay, Karmazin Says
Sirius and XM think chances are better than 50-50 they'll win regulatory approval of their all-stock $13- billion “merger of equals,” Sirius CEO Mel Karmazin told analysts Tues. in a joint conference call with XM Chmn. Gary Parsons. Karmazin wouldn’t have taken the merger proposal to the Sirius board if he weren’t so confident of regulatory approval (see separate story), he said. XM and Sirius wouldn’t have paid hundreds of thousands of dollars to antitrust attorneys if they weren’t sure they're on “solid” regulatory ground, Parsons said. However, Parsons, said he wasn’t willing to specify odds on merger approval.
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Sirius and XM “reached out” to key members of Congress in the 12 hours since their merger announcement to explain how the union “was in the best interest of their constituents,” Karmazin said. They will visit the Hill next week to do the same, he said. Sirius and XM agreed to file an application at the FCC within 25 days to start the Commission review clock, Karmazin said. It’s up to the 5 commissioners to decide whether the merger will bring consumers “more choice and better pricing” in satellite radio than with Sirius and XM operating independently, Karmazin said. The companies think it will, he said, saying a consumer who wants both services needs to pay $26 monthly and buy 2 devices.
The proposed merger’s public interest will be at the root of a Justice Dept. review and subsequent decision on whether to approve it, and Sirius and XM “are confident this is in the public interest,” Parsons said. “A lot has changed in the decade” since Sirius and XM got FCC licenses, he said. A merger will afford consumers a greater choice of programming and the best content and devices from “both platforms,” while eliminating duplicative channels will let the combined entity to target “underserved communities,” Parsons said. In the audio entertainment market, satellite radio’s 14 million subscribers also in comparison with the 223 million who listen weekly to AM and FM radio, the 219 million who subscribe to wireless and the 39 million who have bought iPods, he said.
For shareholders, a merged entity will “deliver more cash flow and deliver it faster” than if Sirius and XM continued operating independently, Karmazin said. For consumers, a merger will “speed the introduction” of interoperable radios, which has been “commercially challenging” for either company to market on its own, Karmazin said. But he avoided being pinned down on how soon such a radio could be commercialized.
No changes are planned in the Sirius and XM satellite “constellations,” Karmazin and Parsons said. Cost “synergies” could abound later as a result of combining the companies’ satellite and ground installations, but both rejected an analyst’s suggestion they give back 1/2 their spectrum to placate regulators and win approval. That would be “impractical,” hampering delivery of programming to “millions” of existing Sirius and XM subscribers. For the same reasons, neither platform will trashed if the 2 companies combine, Parsons said.
Other nuggets: (1) Though still operating independently, Sirius and XM will talk about what to call the merged company and where it will have its hq, Karmazin said. (2) The merged company will have 12 dirs., Parsons said. Besides Parsons, its chmn., and Karmazin, its CEO, Sirius and XM each will designate 4 independent dirs., he said. Rounding out the membership will be delegates from GM and Honda, he said. (3) Little was said about the future of XM CEO Hugh Panero, who apparently will have no post in the combined company. Parsons praised him as a “friend” and for his contributions in lifting satellite radio. (4) There is little incentive for satellite radio to raise subscription pricing, which would thwart its ability to woo new users amid competition from other audio entertainment market entrants, Karmazin said. Sirius doesn’t base its business model on winning over XM subs but on luring the 90% of the public not subscribing to satellite radio, said Karmazin. That’s why Sirius didn’t raise pricing 2 years ago when XM did, he said.
(5) Karmazin is unfazed by NAB criticism of the merger deal, seeing it as “consistent” with 17 years of negative comments on satellite radio, he said. (6) Under the deal, if either party backs out it owes the other $175 million, he said, adding that more terms will be disclosed in an 8-K filing at the SEC by week’s end. (7) No existing subscriber’s radio will go dead after completion of the merger, Karmazin and Parsons said. Karmazin said Sirius and XM will try to work with exclusive content partners to make programming available to all subscribers under the combined entity.