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XM, Sirius Deny Rumor Of Merger

By Annys Shin
Washington Post Staff Writer
Thursday, January 27, 2005; Page E05

Former Viacom Inc. president Mel Karmazin held his first conference call with analysts as chief executive of Sirius Satellite Radio Inc. yesterday to discuss the company's rising revenue and its 2005 guidance. But the first question he got wasn't about Sirius's financial outlook. It was about a rumor that Sirius was in talks to merge with its rival, District-based XM Satellite Radio Holdings Inc.

"Regarding a rumor that's out today, I've been with the company about eight weeks. This is about my third rumor that I've confronted," Karmazin replied. "I have not met with the chairman [of XM]. I have not met with the CEO. So I have no idea where any of this came from."

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Even in the fledgling satellite radio business, speculation that XM and Sirius may combine is already an old line among executives and analysts. "The rumor that XM and [Sirius] may merge has a tendency to crop up a couple of times a year," April Horace, a media analyst for Janco Partners Inc., wrote in a research note released yesterday.

The rumor gained traction again after the New York Post yesterday reported that executives of both companies had met recently to talk about a possible merger. The story cited unnamed sources "close to the matter."

Having had to field this bit of speculation before, XM chief executive Hugh Panero had little patience for it. "We don't comment on rumors. However, this is the same news organization that headlined that Dick Gephardt was going to be John Kerry's running mate and I'm astounded by how media outlets pick up on an unattributed story on an online service and cause it to become a 24-hour story," he said.

Despite the denials, enough investors remained curious about the feasibility of a merger that several analysts felt compelled to put out research notes laying out the hurdles to such a deal.

Horace and other analysts doubted that regulators, having issued two licenses to encourage competition in the first place, would sign off on it. Other analysts pointed out possible technical problems because the companies use different satellite technology.

Sirius last year agreed to pay $500 million over five years to land shock jock Howard Stern, and XM signed a $650 million, 11-year broadcast and marketing deal with Major League Baseball. Horace said she doubted each company would have paid for these exclusive deals if they were just going to combine.

Sean P. Butson, a media analyst for Legg Mason Inc., said a merger is not likely because of the executives involved, Panero and Karmazin. "Why would Karmazin take the job if he was just going to sell it? And Panero is a young, aggressive executive. Why would he build up the company only to sell it to a smaller competitor?" Butson said, referring to the fact that XM has 3.2 million subscribers compared with Sirius's 1.2 million.

Sirius posted a fourth-quarter loss of $261.9 million, compared with a loss of $147.8 million in the corresponding period a year ago. Revenue rose to $25.2 million, compared with $5 million for the fourth quarter of 2003. Shares of Sirius closed yesterday at $6.18, down 6 cents.


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