More than two years of merger rumors came to fruition Monday (Feb. 19) as Sirius Satellite Radio and XM Satellite Radio announced that the two FCC-licensed companies have entered into a definitive agreement, under which the companies will be combined in a tax-free, all-stock merger of equals with a combined enterprise value of approximately $13 billion, which includes net debt of approximately $1.6 billion. In 2006, the companies had combined revenues of $1.5 billion and both companies tentatively reported having finished the fourth quarter in the black and with a record amount of new subscribers totaling more than 14 million in all.

XM Chairman Gary Parsons will continue to head the new company and Sirius CEO/President Mel Karmazin will run the combined operation. XM CEO Hugh Panero will run XM until the merger is closed. Both Parsons and Karmazin will have director’s seats on the new company’s 12 person board. Each company will appoint four independent members, as well as one representative from each of General Motors and American Honda, the satcasters reported in a joint news release.

The companies also said XM shareholders will receive a fixed exchange ratio of 4.6 shares of Sirius common stock for each share of XM they own. XM and Sirius shareholders will each own approximately 50% of the combined company.

"We are excited for the many opportunities that an XM and Sirius combination will provide consumers," said Parsons and Panero in a joint XM statement. "The combined company will be better positioned to compete effectively with the continually expanding array of entertainment alternatives that consumers have embraced since the Federal Communications Commission (FCC) first granted our satellite radio licenses a decade ago."

"This combination is the next logical step in the evolution of audio entertainment," said Mel Karmazin added. "Together, our best-in-class management team and programming content will create unprecedented choice for consumers, while creating long-term value for shareholders of both companies. The combined company will be positioned to capitalize on Sirius and XM's complementary distribution and licensing agreements to enhance availability of satellite radios, offer expanded content to subscribers, drive increased advertising revenue and reduce expenses. Each of our companies has a strong commitment to providing listeners the broadest range of music, news, sports and entertainment and the best customer service possible. We look forward to sharing the benefits of the exciting new growth opportunities this combination will provide with all of our stakeholders."

The combined company will offer a huge array of programming choices including Howard Stern, Opie & Anthony, and Bob Edwards in the morning, Martha Stewart, all major league sports including NFL, MLB, NASCAR racing, NBA, and college sports, plus scores of commercial-free music programming..The companies added that “together, XM and Sirius will be able to improve on products such as real-time traffic and rear-seat video and introduce new ones such as advanced data services including enhanced traffic, weather and infotainment offerings.”

Passing regulatory muster will be the companies biggest fete. The companies each paid about $80 million for FCC licenses in 1996 to operate national only satellite-delivered services. The stipulation at conception was the two satellite operators could not merge operations and the there would remain two separate licenses. During a chat with reporters outside his FCC office in Washington in January, FCC Chairman Kevin Martin emphasized that a merger of Sirius and XM could not happen. The following day in New York, he told another set of reporters and analysts that the rules could be changed. Whether Congress is in the mood for a satellite monopoly remains to be seen.

The deal is also apt to get resistance from the powerful National Association of Broadcasters which has lobbied hard both Congress and the FCC to keep the two satcasters to national-only service when each has asked for additional terrestrial repeater networks. The NAB-backed "Local Emergency Radio Service Preservation Act of 2007," introduced into Congress on Feb. 12, proposes to keep satcasters focused on their “national-only licenses” while declaring local radio broadcast stations "an important source of local news and weather programming."

The satcasters have figured this in and have hired a battery of communication law firms to push through the deal which they expect to complete by the end of this year.

The companies will hold a joint webcast on Tuesday (Feb. 20) at 8:30 a.m. ET to discuss this announcement. The webcast can be accessed at www.sirius.com and www.xmradio.com, as well as on their satellite radio services by tuning to Sirius channel 122 and XM channel 200.

In making their President's Day announcement, the satcasters did not suggest a new name for the combined company or suggest whether one of the current names would live on. Shares of Sirius closed Friday up a dime at $3.70 while XM was up $1, to $13.98.In making their President's Day announcement, the satcasters did not suggest a new name for the combined company or suggest whether one of the current names would live on. Shares of Sirius closed Friday up a dime at $3.70 while XM was up $1, to $13.98.