XM Satellite Radio Holdings Inc. yesterday said it has invested $25 million in WorldSpace Corp., a privately held District-based satellite radio provider in West Africa, the Middle East and India that has said it intends to go public.
The move could broaden XM's reach, and help turn satellite radio into a global service similar to satellite television, said analysts.
As part of the deal, the two companies agreed to work together to develop products, such as receivers, and to strengthen relationships with distributors such as automakers and sources of programming. WorldSpace, whose initial backers included prominent Saudi investors, programs four channels for XM.
"We look forward to becoming a strategic investor in WorldSpace's worldwide satellite radio system and advancing satellite radio technology and reach through our cooperative efforts," XM Chairman Gary M. Parsons said in a news release.
On the heels of the XM announcement, WorldSpace's underwriter raised the projected IPO share price from $16 to $18 per share to $18 to $20, according to the company's filing with the Securities and Exchange Commission. It plans to use the money to expand its business in India and possibly move into China and Europe.
XM, also based in the District, charges its more than 4.4 million subscribers $12.95 a month for access to more than 150 channels of news, entertainment, music and sports. Its only direct competitor is New York-based Sirius Satellite Radio Inc. The Canadian partners of both companies recently received licenses to begin to offer services there.
WorldSpace provides a similar service outside North America, though it has only 63,000 paid subscribers. The company wants to add subscribers by appealing to newly affluent consumers in each of its target markets. In India, for example, WorldSpace officials estimate about 35 million households could afford their service. To date, the company has more than 26,000 subscribers in India who pay about $40 per year to receive 38 channels of news, music, sports, and entertainment programming.
WorldSpace also provides services to government clients. Since 2002, it has won more than $8 million worth of contracts, according to documents filed by WorldSpace with the SEC. Former secretary of housing and urban development Jack Kemp sits on its board, as does former Republican Maryland senator Charles McC. Mathias.
Analysts said the investment is a good move for XM, which a few days ago said it bought additional U.S. broadcast spectrum, allowing it to carry more programs. "The bottom line is what XM is trying to do is not only be the leader in North America but to evangelize the satellite radio industry. They're saying, 'We could be like the [satellite television] industry. Satellite radio could be a world service,' " said April Horace, an analyst for Hoefer & Arnett Inc.
WorldSpace was an early investor in XM and licensed the technology on which XM's network is based. But in 1999, the company sold its stake in XM for $75 million after the United States bombed a factory in Sudan owned by a WorldSpace investor, Salah Idris, that U.S. officials suspected of making chemicals used by terrorists. WorldSpace said in an SEC filing that the allegations against Idris "have never been substantiated." Idris filed suit against the government in U.S. federal court over the bombing.
Other initial WorldSpace backers, including Saudi investors Khalid Bin Mahfouz and Mohammed H. Al-Amoudi, also have been "the subject of allegations that they and/or charities they were involved in have supported terrorism," the company noted in recent SEC filings -- an allegation they have denied in court and in the media.
None of the men, including Idris, any longer own shares in the company or have any voting control, the company reported.
Chance Patterson, an XM spokesman, said the company has no lingering concerns over WorldSpace's backers. "We're obviously comfortable moving forward," he said.
Judith Pryor, senior vice president of corporate affairs for WorldSpace, declined to comment, citing the quiet period before the public offering.
Last year, WorldSpace reported revenue of $8.5 million, down from $13 million for 2003, according to SEC filings. It posted losses of $577 million in 2004 and $217 million in 2003.