What do Oprah Winfrey and the NFL have in common? Not much, but they could potentially be heard on the same radio station, as Sirius (Nasdaq: SIRI) and XM Satellite Radio (Nasdaq: XMSR) recently announced a merger to create a company with a value of $13 billion, including $1.6 billion in net debt.
Under the terms of the deal, XM stockholders will get 4.6 shares in Sirius and Mel Karmazin, currently Sirius CEO, will be CEO of the combined company, and Gary Parson, current chairman of XM, will hold the same position in the new company. The deal will need approval from the Federal Communications Commission (FCC) which may prove problematic. "The hurdle here, however, would be high as the commission originally prohibited one company from holding the only two satellite radio licenses," the agency's chairman Kevin Martin said on Monday. "The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices," Martin said. The FCC also blocked a similar merger between EchoStar (Nasdaq: DISH) and DirecTV (NYSE: DTV) in the past.
XM and Sirius argue they should be allowed to combine as they compete with every audio device that consumers use, from typical car radios to digital music players. As one company, they said they can offer improved services at flexible prices. According to XM Chairman Gary Parsons, "We are confident we will get this through the regulatory arena by the end of this year."
What does the merger mean for current Sirius and XM subscribers? A whole lot of choices! The two satellite radio companies signed up major stars and sports leagues to convince subscribers to pay for their services. Sirius boasts Howard Stern, Barbara Walters, Deepak Chopra, Martha Stewart, the National Football League and NASCAR, while XM has Major League Baseball, Oprah Winfrey, Opie and Anthony, and Bob Edwards. Both services also offer dozens of music channels, most commercial free, as well as talk, news, comedy and live programming. In time, subscribers may be able to pick the shows they prefer and pay a related monthly fee, much like cable TV.
Potential mergers, acquisitions, and buyouts are great events to bring up with your students and tie to The Stock Market game program. If you're a high school teacher, be sure to take a look at the Corporate Action lesson in the Teacher Support Center. This lesson discusses the impact of common corporate actions such as mergers, stock splits, spin-offs, and buyouts on investors. For elementary and middle school teachers, What Causes Stock Prices to Change is a good lesson to use when introducing mergers and buyouts. Both lessons are accessible by clicking "Lesson Sequence" and then selecting "Display a Complete Outline of All Lessons."
This article was written by a staff member of The Stock Market Game.