The merger saga of XM Satellite Radio (NASDAQ: XMSR) and Sirius Satellite Radio (NASDAQ: SIRI) has gone on for so long that yesterday's FCC approval was almost a letdown. The companies have lost hundreds of millions of dollars over the year-and-and half since the marriage was first proposed.
The green light comes with some draconian conditions. According to The Wall Street Journal (subscription required), "As part of the deal, the companies have agreed to a three-year price cap as well as promising to bring interoperable radios to the market within a year." The price cap arrangement could hardly be worse for the new operation. Each company still bleeds red ink and has over $1 billion in debt.
The ability to raise prices to consumers could be the key to the survival of satellite radio. The industry's major source of subscribers is new car sales. Those may not recover for two years. The combined company will have close to $2.5 billion in debt, and may have to raise more money. In the current environment, that will be hard. Depending on how the capital comes in, current common shareholders could be diluted.
The news of the approval should be accompanied with some joy, but, it won't be. That may be why the shares in both companies trade so low.
Douglas A. McIntyre is an editor at 247wallst.com.
Serious Money: How 'Stable' after 345 DJIA drop? -- CB, DIS, JNJ, TEVA & XEL
Closing Bell: Dow plunges amid grim economic news; AIG, CIEN, LM, TEX decline, WMT gains
Is BT's offer to save Britain's red phone boxes for £500 fair?
Reader Comments (Page 1 of 1)
7-26-2008 @ 12:15PM
Art said...
Hang on...There are some positive surprises ahead after the XM/Sirius merger.
7-26-2008 @ 3:06PM
JOE E. said...
THIS IS MORE A QUESTION: WHAT HAPPENS WITH THE SHAREHOLDERS STOCK WHEN YOU HAVE A MERGER??? AND, HOW LONG WILL WE SEE THIS NEW COMPANY STOCK DOWN??? THAT IS WHAT HAPPENS AFTER MERGERS, ISN'T IT???
7-26-2008 @ 10:11PM
Kent said...
I've read and learned about Sirus couple to three years ago when it began to air. I may be wrong about it, but I believe they weren't promoting their service outside the metropolitan areas of the country. I wouldn't know where or whom to contact for the service. Radio channeled stations are more common in foreign countries but it's still new here. AOL has a good selection on their web, but rarely listen to it.
7-28-2008 @ 11:19AM
Marketing Dept. said...
Says Richard Behar, President of Capitol Clothing Corp., a Children's wear manufacturing company based in Miami, Florida. " I have XM Radio in my car and it is great ! On my way home from the office I enjoy listening to CNN or other business stations for the latest Business News updates. The selection of categories of music is incredible. "
7-30-2008 @ 11:42AM
Ken said...
Gosh, it would be nice if WSJ allowed more than just 1 paragraph to be read free. Just googled around and found a fantastic deal that gives WSJ.com subscriptions free with the print one. http://www.getwallstreetjournal.com
The fact that gasoline prices is killing car sales will undoubtedly put a dent in sales projections for BOTH companies too.