Sirius, XM shares rise as deal nears completion

WASHINGTON (Reuters) - Sirius Satellite Radio Inc’s planned acquisition of rival XM Satellite Radio Holdings Inc on Monday moved closer to consummation after a key U.S. regulator expressed support for the 16-month-old deal, driving up both companies’ shares.

A woman walks past the waiting area of the XM Satellite Radio building after the U.S. Justice Department approved that Sirius Satellite Radio's $4.59 billion purchase of rival XM Satellite Radio would be given antitrust clearance in Washington, March 25, 2008. REUTERS/Larry Downing

Federal Communications Commission Chairman Kevin Martin confirmed published reports that he would support the transaction, with the companies agreeing to a series of conditions.

Those conditions include a pledge to make 24 radio channels available for noncommercial and minority programming, according to FCC sources. In addition, the companies would agree to cap prices, provide interoperable radios and offer programming on an “a la carte” basis.

“I am recommending that with the voluntary commitments they’ve offered, on balance, this transaction would be in the public interest,” Martin said in a statement.

Martin’s proposal to approve the deal could be circulated among the other commissioners as soon as this week, the FCC sources said.

Martin’s decision could remove the last regulatory hurdle in a lengthy and heavily criticized move to combine the companies. Antitrust authorities at the U.S. Department of Justice approved the merger in March after concluding it would not harm consumers.

The Justice Department said satellite radio companies faced stiff competition from traditional and high-definition radio, iPods and MP3 players, and audio on mobile phones.

Shares of Sirius, the satellite radio home of shock jock Howard Stern and the National Football League, climbed 11 cents, or 4.3 percent, to $2.65 in afternoon Nasdaq trading. The stock closed at $3.69 on February 16, 2007, the last trading day before the deal was announced.

XM shares rose 49 cents, or 4.5 percent, to $11.36, down from $13.98 just before the announcement of the merger agreement. The company’s programming features talk show host Oprah Winfrey and Major League Baseball.

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Stanford Group analyst Frederick Moran said the companies’ share prices had faltered in recent weeks as investors grew concerned about the protracted FCC review.

“Today you are seeing a sigh of relief that the FCC approval still does look like it will happen, albeit a bit later than we all expected,” Moran said.

The deal, which calls for the exchange of 4.6 Sirius shares for each XM share held, was originally valued at about $4.6 billion.

Under U.S. law, the FCC must determine whether a communications merger is in the overall public interest. In the case of the XM-Sirius deal, the agency also has to decide whether to waive a rule that has barred the two satellite radio companies from combining.

Stifel Nicolaus analyst Blair Levin said Martin would probably be able to get the deal approved with support of the two other Republican FCC commissioners, Robert McDowell and Deborah Taylor Tate.

The concessions by XM and Sirius may not be enough to win over the two Democratic commissioners, Michael Copps and Jonathan Adelstein, Levin said.

However, he said the concessions could help muffle the fallout from Democrats on Capitol Hill, many of whom have been critical of the deal.

Interest in pay-radio has cooled in the 16 months since their deal was announced, as both XM and Sirius have muted their marketing push while lobbying regulators to approve the deal.

But as the number of cars with built-in satellite radio has increased, both services are still adding subscribers, who pay about $13 a month for more than 100 channels of music, news and talk programming.

XM ended the first quarter with about 9.3 million subscribers, vs. 8.6 million for Sirius.

Reporting by Franklin Paul in New York and Peter Kaplan in Washington; Editing by Gerald E. McCormick and Lisa Von Ahn