After numerous months of speculation, satellite radio titans XM and Sirius have agreed to tie the knot. This new media monolith has not yet announced a new name, although Xirius might be an interesting thought. The marriage creates an entity with a market cap of $13 billion (including $1.6 billion in debt) and a subscriber base of over 13 million. Current Sirius CEO, Mel Karmazin, will remain CEO of the new company, while XM chairman Gary Parsons will retain his position after the merger as well. Current XM CEO, Hugh Panero, is expected to step down after the deal is finalized. This is probably a good call as he has received bad press as of late, amid allegations he provided positive outlook knowing full well the targets would not be met. This doesn’t sound all that bad until you hear that he also sold millions of dollars worth of shares during that time.
As you can imagine, the merger is expected to create economies of scale, hence cost savings. I would expect big lay-offs to come. The most important number for both companies up until this point has been the user acquisition cost. This deal is expected to cut that expense significantly. Furthermore, the union will produce a greater variety of subscriber products and flexibility within packages.
As both players accumulate bigger losses on their balance sheets, it was only a matter of time before they banded together to do what had to be done. Some call it a last ditch attempt. The companies call is a strategic move.
But wait. Stop the press. Will the deal actually go through? I HIGHLY doubt it.
The satellite radio industry is quite interesting. Why? Because they’re are only two players. Forget market share or niches. There are only two players in the industry, period. What other special-case industries can lay the same claim. Very few… only the soft drink and airline manufacturing industries off the top of my head.
Now if Pepsi and Coca-Cola were to merge, I’m sure all hell would break lose. Conspiracies theories would run amok and regulators would absolutely not let such a deal pass. The same is true of Boeing and Airbus. Collaboration as such eliminates competition completely and provides the opportunity for inflated pricing, as no other alternatives. Just take a look at Microsoft Windows…
To say the two companies face regulatory hurdles is the understatement of the year. In order for the merger to pass, FCC chairman Kevin Martin says ”the companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices.” Hmmm… it could happen. But I bet it would unfold like any government candidate platform. Short-term lies to attain long-term gains.
In any case, knowing the state of ethics in corporate America nowadays, the merger will pass with little or no scrutiny.