Sirius CEO Talks Up XM Satellite Merger

November 26, 2006 5:58 PM EST

CONTRIBUTOR http://www.antandsons.com

In a Smart Money article set to be released in the magazine's December 1 issue, author Dyan Machan sheds some light on the possibility of Sirius Satellite Radio Inc. (NASDAQ: SIRI) merging with satellite radio competitor XM Satellite Radio Holdings Inc. (NASDAQ: XMSR).

According to Machan’s interview with Sirius CEO Mel Karmazin, Karmazin says that he would be interested in merging Sirius with XM Satellite Radio. He elaborates by telling Machan that “mergers often lead to creating shareholder value" and that he has “always been open to that.”

Analysts have also given the merger rumors much more credibility in recent weeks. Stifel Nicolaus Analyst Kit Spring said that there is “significant upside potential… if Sirius makes a merger bid for XM Satellite, a scenario which we see as increasingly likely."

What is most striking is that Karmazin originally predicted that a merger would face tremendous regulatory issues. Back in June, Karmazin said during an analyst conference call that he would like to buy competitor XM Satellite. He specifically told those in attendance that "we'd love to buy them. Price would matter, so that would be an issue ... (and) there would definitely be the regulatory issue." However, he now believes that regulators would not pose a problem.

So is this a hint that Karmazin is in the midst of convincing XM with a merger proposal that would dominate the satellite radio industry?

After a series of tough questions, Machan comes out and hits the Sirius CEO with the question that has been on the mind of many investors following the satellite radio industry. Is Sirius going to merge with XM? Here is what he said...or did not say:

Mel Karmazin: I'm really not allowed to say. I have focused my entire career on shareholder value and wealth creation. Often mergers allow for that. I combined my radio company with CBS, and I combined CBS with Viacom.

Dyan Machan: What was XM's reaction to your proposition?

Mel Karmazin: "I'm dreaming" is their quote. But before they said that, both stocks went up. So I guess investors think [a merger] could be interesting.

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