SIRIUS - XM merger proposed

I received notice from SIRIUS via email about the same time I saw a post at Eric's blog about this. From the news release at the SIRIUS web site:

XM Satellite Radio (Nasdaq: XMSR - News) and SIRIUS Satellite Radio (Nasdaq: SIRI - News) today announced that they have entered into a definitive agreement, under which the companies will be combined in a tax-free, all-stock merger of equals with a combined enterprise value of approximately $13 billion, which includes net debt of approximately $1.6 billion.

My initial reaction is disappointment because I liked the fact that the younger, upstart SIRIUS was obviously outpacing the more corporate XM. Competition is usually good for fostering further innovation and spurring complacent competitors. I think it's good that Mel Karmazin, the current SIRIUS CEO, will remain the CEO of this newly proposed entity because he seems to really "get" the freedom and consequent potential of satellite radio.

From the email I, and probably all SIRIUS subscribers, received:

After shareholder and regulatory approvals, we anticipate that the combination will be finalized by the end of 2007. Until then, both companies will continue to operate independently.

Much needs to still occur before this becomes a reality, but the companies appear determined to make this happen. Key language from the news release identifies how SIRIUS and XM will be positioning their merger to garner federal regulatory approval:

More Competitive Audio Entertainment Provider -- The combination of an
enhanced programming lineup with improved technology, distribution and
financials will better position satellite radio to compete for
consumers' attention and entertainment dollars against a host of
products and services in the highly competitive and rapidly evolving
audio entertainment marketplace.  In addition to existing competition
from free "over-the-air" AM and FM radio as well as iPods and mobile
phone streaming, satellite radio will face new challenges from the rapid
growth of HD Radio, Internet radio and next generation wireless technologies.
[emphasis mine]

According to a recent article on Bloomberg, current FCC regulations do not allow such a merger as a condition of the two companies being given approval to operate. The language above indicates the two satellite companies are reframing what competition means in this industry, i.e., it's not anticompetitive for there to be a single satellite radio provider when there are so many other "radio" and music/talk choices available to listeners.

It will be interesting to see how things play out. I like that Mel will be at the helm, but there are just too many unknowns at this point to know for sure if this will be a good thing. There are over 100 comments on this story over at the unofficial Sirius Backstage forums.