Sirius, XM signal merger

U.S. satellite radio operators Sirius and XM yesterday announced a proposed all-stock merger valued at US$13-billion, and if the deal goes through it could mean a similar move by the Canadian firms that rely on them for content.

While it faces significant regulatory hurdles, a successful tie-up between the U.S. service providers would create a company with 14-million subscribers and yearly revenues of about US$1.5-billion. It would also most likely result in the merger of their content into one feed, which could leave little option but consolidation for XM Canada, which trades in Toronto through a public company majority- owned by businessman John Bitove, and Sirius Canada, which is owned by a private partnership including Standard Radio Inc. and the CBC.

"It would force a merger in Canada because they feed most of their content from the U.S. service. If the two of them get together in the States ? well you can't run two separate services here," said Carl Bayard, analyst with Desjardins Securities.

XM Canada, which is publicly traded through Canadian Satellite Radio Holdings Inc., is 22% owned by Washington, D.C.-based XM. New York-based Sirius maintains a 20% stake in Sirius Canada.

Shares of thinly-traded Canadian Satellite Radio rose 27%, or $1.80, to close at $8.44 in Toronto yesterday.

The Canadian firms pay their U.S. partners for most of the channels they offer, with 10% of their service regulated as Canadian content. While this Canadian content variance would offer some differentiation between the services if their U.S. feeds merge, it's probably not enough to sell both products separately, Mr. Bayard said.

In both the U.S. and Canada, satellite radio services have competed fiercely for customers with one another, traditional and online radio, and with products including Apple's iPod. Despite aggressive advertising, along with programs hosted by celebrities, including shock jock Howard Stern (Sirius), and Oprah Winfrey and Bob Dylan (XM), financial losses and share price declines have continued at both firms.

"This transaction will enhance the long-term financial success of satellite radio by allowing the combined company to better manage its costs through sales and marketing and subscriber acquisition efficiencies, satellite fleet synergies, combined R&D and other benefits from economies of scale," U.S.-based Sirius and XM said in a joint release yesterday. Analysts have estimated cost synergies of up to US$7- billion in the event of a merger, they added.

The industry faces big costs luring customers in Canada. XM has more than 120,000 subscribers, but posted a loss of $102.7- million in fiscal 2006. The proposed merger is good news for the industry, since it will free up funds that can be spent on advertising the benefits of subscriber-based radio, said Mr. Bitove, chairman of Canadian Satellite Radio.

"Obviously in the U.S. they believe that if they could combine forces they could plow those savings into marketing dollars to drive subscription penetrations higher than they are right no w," Mr. Bitove said. "Once we get an understanding of the rationale and business case in the coming weeks we'll decide what we're going to do."

In a statement Sirius Canada's chief executive Mark Redmond described news of the proposed merger as "exciting."

The deal needs approval from various parties, including antitrust agencies, shareholders and the U.S. Federal Communications Commission.

A spokesman for the Canadian Radio-television and Telecommunications Commission, which licenced the two Canadian satellite radio companies in 2005, said it is too early to comment on the impact of the merger.
lmcleod@nationalpost.com

Well, I don't like this at all. These XM jerkoffs just want to ride our coattails to victory and I say NO!!