Satellite radio companies XM Canada and Sirius Canada Inc. plan to merge in an effort to strengthen their competitive stance amid an industry crowded with audio entertainment options ranging from iPods to over-the-air radio stations.
The all-stock deal announced Wednesday is valued at about $520 million and includes $130 million in long-term debt.
The move comes after longtime speculation that the two companies, which charge subscription fees for their services, would eventually combine their operations to save costs and put more satellite radio listeners under the same umbrella.
Their American counterparts, XM Radio and Sirius Satellite Radio, merged more than two years ago but the Canadian companies had been coy about whether they would follow suit.
Sirius Canada, a private company that is 40 per cent owned by CBC Radio, 40 per cent by Slaight Communications and 20 per cent by Sirius XM in the United States, will end up with 58 per cent ownership of Canadian Satellite Radio Holdings Inc. (TSX:XSR), the parent company of XM Canada.
“This all stock merger of equals now creates a leading Canadian media company,” said CSR chairman John Bitove, who will serve as chairman of the combined company.
“Standing together, Sirius Canada and XM Canada will become a stronger competitor in digital music and entertainment,” he told a conference call.
The combined company will have a total subscriber base of more than 1.7 million.
Satellite radio has been struggling to find a larger audience in Canada over the past few years, after enduring several setbacks.
The downturn of the automotive industry put a crunch on growth prospects for the companies as their business models relied on being installed in new vehicles at a time when fewer people were shying away from the big ticket purchases.
Meanwhile, more Canadians have turned to portable music devices like Apple’s iPod which can house a large collection of song and “podcasts” which are downloadable audio files that are similar to talk radio.
Then there’s the popularity of traditional radio stations which haven’t suffered the same listener erosion that has been seen in the United States.
In its most recent quarter, Canadian Satellite Radio Holdings Inc. sharply narrowed its fourth-quarter loss, but was still $700,000 in the red compared to a loss of $3.1 million a year earlier.
Revenue increased 8.2 per cent to $14.9 million.
In the United States, Sirius and XM merged in 2008 to form Sirius XM (NASDAQ:SIRI) — which holds 47 per cent of Canadian Satellite Radio Holdings.
RBC Capital Markets analyst Drew McReynolds said based on the information available, the transaction is “positive” for Canadian Satellite Radio investors.
The “realization of synergies” will create a much stronger combined company, McReynolds wrote in a research note.
While the merger was expected, McReynolds wrote that he expected it to be sooner after the competition of the U.S. merger.
Sirius Canada chief executive Mark Redmond said the merger is the next logical step in the evolution of satellite radio in Canada.
“The benefits of a merger are clear and together we’ll be better able to create more growth and opportunity for shareholders, accelerate technological innovation and ensure that satellite radio is able to compete in the rapidly evolving audio entertainment industry,” Redmond said.
The transaction is subject to regulatory approval by the CRTC.