Sirius and XM Threw in Late Concessions to Win Merger Approval
Sirius and XM late Friday put in writing additional concessions to get FCC Commissioner Deborah Tate to be the necessary third vote for approval of the companies’ merger, documents released Monday at the commission show.
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The concessions included the satellite radio companies’ vow to introduce interoperable radios into the retail aftermarket within nine months, or three months earlier than they had previously promised. On that schedule, the first interoperable radios could reach store shelves by May, in time for “dads and grads” promotions.
The merged company will be called “Sirius-XM,” reflecting the importance of XM’s brand name equity with General Motors, we're told. The fate of the Sirius technical operations team in New York and its Washington, D.C., counterpart remain undecided, we're told, though conflicting accounts said one would absorb the other.
By previous design, the board of the combined company will have 12 members, including XM Chairman Gary Parsons and Sirius CEO Mel Karmazin, who will keep those titles at Sirius-XM. Of the 10 remaining members, Sirius and XM each will choose four and XM will designate one member each from GM and Honda. An SEC filing Monday said existing Sirius board members Leon Black, Lawrence Gilberti, James Holden and James Mooney are expected to sit on the board of the combined company, as will XM directors Joan Amble, Eddy Hartenstein, Jack Shaw and Jeffrey Zients.
OnStar President Chester Huber will be the GM designee on the board and American Honda Executive Vice President John Mendel will be the Honda designee, the filing said. Sirius and XM “anticipate that there will also be changes to the senior management of the combined company following consummation of the merger,” the filing said. The filing was a prospective supplement for converting XM shares into Sirius shares as part of the merger.
Three existing XM directors and three from Sirius won’t have seats on the combined company’s board, the filing said. On the XM side, they're CEO Nate Davis, private investor Jari Mohn and Thomas Donahue, president of the U.S. Chamber of Commerce. On the Sirius side, they're Chairman Joe Clayton, Warren Lieberfarb, the former Warner Home Video president who now runs his own Los Angeles consulting company, and Michael McGuinness, portfolio manager at the W.R. Huff Asset Management Co.
The satellite radio companies have agreed to freeze their prices for three years. After one year, the FCC will allow the combined company to “pass through cost increases incurred since the filing of the combined company’s FCC merger application as a result of statutorily or contractually required payments to the music, recording and publishing industries for the performance of musical works and sound recordings or for device recording fees,” the commission said. FCC Commissioner Michael Copps, who long ago expressed concerns about the merger and voted against the combination, believes the three-year price freeze will mean “that by 2011 satellite radio subscribers will face monopoly price hikes by a company with the incentive and ability to impose them,” he said.
The FCC within 30 days will begin a notice of inquiry into “important questions” raised about HD Radio, the commission said. Broadcasters and public radio had urged the agency to require that all satellite radio receivers also contain an HD Radio chip to level the playing field between terrestrial and satellite digital radio. A number of lawmakers also urged the requirement, as did HD Radio developer iBiquity Digital. Pioneer was alone among CE makers to oppose it on the ground that the government shouldn’t mandate technology choices that are best left to the marketplace. In the end, the commission said it “found it unnecessary” to impose the HD Radio requirement. IBiquity will “defer any comments on the proceeding until the FCC ruling is public and the NOI has been issued,” CEO Bob Struble told us Monday.
The FCC judged the proposed merger of XM and Sirius on the “'worst-case’ assumption” that the relevant market was made up only of their satellite radio services, the commission said. “The Commission concluded that the merger, absent the Applicant’s voluntary commitments, and other conditions, would result in potential harms.”
The FCC repealed its prohibition on the two licensees merging, it said. The commission found the prohibition was a “binding substantive rule, not a mere statement of policy,” but the commission can repeal a rule, the agency said. “For the same reasons that it approved the merger, the commission concluded that repeal of the rule prohibiting the merger will, on balance, serve the public interest,” the agency said. The prohibition is not subject to the 30-day Administrative Procedure Act “because it relieves a restriction” and won’t require a congressional review, the FCC said.