In a landmark development for the satellite radio industry, rivals XM Satellite Radio and Sirius Satellite Radio agreed to merge Monday in a $13 billion transaction that the companies hope will enable them to expand their program offerings and to realize a profit for the first time. The announcement follows weeks of speculation over a possible combination that would, in effect, create a single provider of digital satellite radio services in the U.S. Under the terms of their FCC licenses, XM and Sirius are barred from acquiring each other’s licenses. Although FCC Chairman Kevin Martin acknowledged that the prohibition could be lifted through a waiver of the agency’s rules, Martin warned Monday that the regulatory hurdle faced by the companies “would be high.” XM and Sirius, which both began service in 2001 and boast nearly 14 million subscribers between them, argue that approval of the transaction by the Justice Department (DOJ) and by the FCC would serve the public interest as the satellite radio industry faces ample competition from iPods, cell phone music services, and digital AM and FM services and because the merger would enable both companies to compete more effectively in such an environment. A similar proposal five years ago involving EchoStar and DirecTV—the only two direct broadcast satellite operators in the U.S. market—was rejected by the FCC and the DOJ on grounds that competition offered by other video providers was insufficient to overcome the antitrust disadvantages of the deal and to avoid hikes in satellite TV prices. Asserting that XM and Sirius command a very small audience compared to the ways in which people obtain music and information in other audio formats, Sirius CEO Mel Karmazin observed: “the only thing that you could even think of similar between [EchoStar and DirecTV] and us is that they both use satellites.” Under the “all-stock merger of equals,” XM shareholders would receive 4.6 shares of Sirius common stock for each XM share held. Sirius CEO Mel Karmazin would serve as the CEO of the new entity, whose name and location have yet to be determined. XM Chairman Gary Parsons, meanwhile, would serve as chairman of the new company. Contingent upon FCC and DOJ approvals, the parties hope to close the transaction by year’s end. As groups such as the Consumers Union and the National Association of Broadcasters objected to the deal on antitrust grounds, the newly-formed House Antitrust Task Force—a temporary body formed by the House Judiciary Committee—announced as its first order of business a hearing on the XM-Sirius merger to take place next Wednesday to probe the competitive impact of the merger. Sources say that Senate leaders are also considering hearings on the deal.
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