Rivals XM and Sirius to merge operations

The CEO of Sirius would become chief executive of the new company.
NEW YORK (AP) -- XM Satellite Radio Holdings and Sirius Satellite Radio have agreed to merge, the two companies said Monday.
The deal would consolidate the only two companies in the emerging business of subscription-only satellite radio, and is sure to face tough scrutiny from federal regulators.
Investors and analysts have been speculating about a deal for months.
The two companies said in a statement that Mel Karmazin, the CEO of Sirius, would become chief executive of the new company while Gary Parsons, the chairman of XM, would remain in that role. XM's CEO Hugh Panero will remain to oversee closing the of the deal, they said.
Significant hurdles
The deal would face significant regulatory hurdles in Washington, including a Federal Communications Commission rule that clearly states that one satellite radio provider cannot buy the other one. However, that rule could be waived.
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 a growing base of digital audio sources such as iPods, mobile phones, and non-satellite digital radio.
XM and Sirius have both posted significant financial losses as they built up their programming lineups and recruited subscribers. Both stocks declined more than 40 percent last year on concerns about their continued growth in subscribers and softness in the retail market, but investors have held out hopes that a merger could bring costs down significantly.
Shares
Shareholders of XM and Sirius would each own approximately 50 percent of the combined company. XM shareholders would receive 4.6 shares of Sirius stock for each share of XM they own.
That would value XM shares at 17.02 each, based on Friday's closing prices, representing a premium of 22 percent from XM's closing value of 13.98 Friday. Markets were closed Monday for the Presidents Day holiday.
The companies didn't say what the new company would be called, though they described it as a merger of equals. The new company's board will have 12 members, including Parsons, Karmazin, four independent directors named by each company, and one representative each from General Motors and Honda Motor.