Live Blogging the Sirius + XM Merger Conference Call
Tags: 2, XM
(I'm live blogging the Sirius and XM Merger Conference Call for those of you who can't listen in. Just keep refreshing the page because this post will be updated in real-time.)
- Intros begin! Mel Karmazin, and Gary Parsons are on board for the call.
- Mel is kicking off the call.
- DOH! There seems to be some technical issues... back into the holding pattern.
- Ok we're back.
- Mel Karmazin begins...
- "We're all very excited about this announcement and the many benefits"
- Mel makes general remarks:
- Both companies have been interested in this combo for quite some time..
- excited to formally announce the merger
- this is "the next logical step in the evolution of satellite radio"
- Excited to review the many benefits that it delivers to XM and Sirius' shareholders and consumers
- Wants to solve the problem of the lack of choice in the satrad marketplace - make content available to all
- Marketplace is different now than it was 10 years ago
- Together the combined company will be better able to compete
- New company will assemble the "brightest minds and creative genius from both companies"
- Combo company will create "considerably greater" operating savings
- We will deliver more cash flow in combo than as a stand alone company
- Will give current and future subs the best programming possibilities available
- Expects to offer best programming from both companies
- Important element in the merger is the "combined focus"
- Merging of R&D to create the best radios out there
- Speed the introduction of radios and of content
- Radios will be "smaller, lighter, simpler and cooler"
- Overtime will combine satellite and terr infrastruture
- Will combine BACKSEAT VIDEO and REAL TIME DATA SERVICES
- The merger of the two entities is "very doable" and "very acheiveable"
- Satellite radio has always been a "growth story" but as a combined co will be a growth story with cash flow and earnings
- Ability to provide more content to a greater population
- Regulatory is on everyone's mind... both companies "have done their homework"
- 1 + 1 = 3
- Synergy value equals or exceed the current value of both companies
- Optimization of almost every item on the cost sheet
- Future generation satellites will be a "single entity"
- EOY 2006 sub figures will be "signficantly more attractive to larger advertisers"
- Advertisers look for "reach" and as one company will have greater reach than on their own
- At the same time, they look to capture savings
- 147% growth rate of the past 4 years.
- Satellite Radio has grown faster than Satellite TV and cellphones after their respective launch dates
- Both companies have executed similar growth objectives
- Confident they can quickly and successfully merge and grow the companies
- XM and Sirius will be better to compete effectively in the growing audio industry
- Accelerated free cash flow generation
- Combining an "unmatched pool of talent from both companies"
- Management structure: will combine the best of the two
- both companies will operate independently until transaction is finalized
- Still looking into a name and a HQ location
- Now to Gary Parsons:
- "very exciting day in our history"
- Looking forward to executing the growth opportunity
- Enhanced content, greater choices and accelerate technological advances
- "signficant value for shareholders"
- XM and Sirius shareholders will each own HALF of the combined company
- Gary to be Chairman, Mel to be CEO
- Board: 12 directors - 4 independent members and 1 each from Honda and GM.
- Hugh Panero will continue as XM CEO "through closing"
- Personal note from Gary: Hugh's "enormous" contribution... he's "both a friend and a talented executive"
- "What does this merger mean for consumers?"
- Consumers will be big winners in this transction
- More choice, greater range of programming - the best content from both services.
- More channels. Allowed to pick and choose in a "more a la carte basis"
- Satrad competes against terrestrial, against HD Radio, against Internet Radio, and iPods and DAPs have redefined portable audio
- Satrad has the burden of selling not just a service - but a radio as well
- there will be competition from the rest of the audio market which will keep prices in check
- Efficiencies are a very important measure
- Satrad has enormous fixed costs
- improved efficencies will allow the new company to make money and deliver a better service
- the marketplace has evolved since they were first given their licenses a decade ago
- competition is across a wide of different services.. XM and Sirius are competing for consumers attention
- There are 237 million vehicles in the US. EACH offer free AM/FM radio.
- 10s of millions of iPods and cellphones.
- Against that backdrop - satrad is still a small player by comparison
- Believe the growth will be faster on a combined basis
- Work appropriately for regulatory approval in the coming weeks and months... will be
- executed in a timely fashion
- Expect transaction to be completed by the end of 2007
- Combined companies will provide consumers with previously exclusive content
- "If you want to listen to Howard Stern AND Opie and Anthony, you need to subscribe to both services"
- This transaction is about CHOICE
- BEGIN Q&A
- Bob Peck - Bear Stearns: "Congratulations, we're very excited for both companies"
Q: Mel, about synergies... where do you see the cost synergies and the revenue synergies?
Gary, what confidence level do you see for a deal getting through?
Are there any break-up clauses about the deal?
A: (MEL) We think all the bills are going to be smaller. From the auditors to the caterers to the lawyers. Synergies are real and realizable. The reason why there's no exact number is because of Anti-Trust.
(GARY) On the regulatory confidence - we wouldn't have entered into this transaction if we didn't think it wasn't part of the public interest. We believe they will clearly see the broader marketplace that is out there. This is in the public interest. There's a "very good probability" of regulatory approval. Mel feels its greater than 50/50.
Break-up fees. Yes, there is a break up. A reciprocal concept. We're committed to this. 8-K will be filed by Friday. Break-up fee of $175M is reciprocal.
- Q: Ben Swinburn from Morgan Stanley:
Combining programming strategy. Have you done consumer research to see if the disconnects or lack of satisfaction in the service is because of this exclusive content?
What's the impact with the RIAA and the NAB?
A: NAB's comments are consistent with their stance for the past 15 years. As for the RIAA, they're working through it this year as SEPARATE companies currently, but are working with each other. Hopefully will come to resolution of the compulsory licenses.
As for churn - it's all about value proposition - if you provide more for the consumer they should be happier. When Sirius didn't have a portable product, they didn't have those subs - but once the portable was offered they gained subs. As a single company there's appeal to both providers' content. Their biz model isnt about taking subs from XM... they rather concentrate on the 90% of people who don't have satrad.
- Q: Brian Craft(?) from Credit Suisse:
Talk to me about the OEM situation and how it will be supported for both companies.
A: (GARY) Yes, both OEM companies don't support each other - so we will be supporting them. But with the combined R&D we will develop new receivers for both services. Are there CAPEX savings and other synergies? Absolutely. Overlay the repeater networks will be longer term, but that's the general migration strategy you'll see.
Q follow up: At what point in time will you begin to migrate users to the dual chipset?
A: (GARY) We can work with an exclusive OEM to allow for a dual-content through the current chipset - it's just negociations with the content partners.
- Q: Jonathan Jacoby of BoFA:
What are going to be the marketing strategies?
Are you going to have to launch new satellites?
What about the NAB and HR 983?
A: On the interim operation - we have had great advice from consel. Until merger is closes will CONTINUE TO OPERATE AS THEY DO TODAY. Look for NO CHANGES on that front.
On Satellites: we do have the ability to integrate the services together at the chipset together. Sats do have the ability to broadcast across both spectrums.
Regarding congressional issues: they've already reached out but they're in recess this week, so they plan to meet with them next week. Regarding any "lobbying organizations efforts" - re, the NAB - this is nothing new from NAB. They've been doing this for years and there's nothing different. On the Pickering Bill, satrad is not using local repeaters for local programming. Broadcasting it on a national footprint and satrad is not in the local advertising market either.
Q - follow up: What are the current shares outstanding?
A: We'll give you that offline
Does the merger change anything with the OEM royalty arrangements?
Will this change the satellite launch schedule?
Announced Sirius-5 in 2008, and this transaction will not in anyway alter that.
Regarding deals with the OEMs, they have no intention of breaking any agreements. In the subject of interoperable radios - that's up to the OEMs if they feel it would be a good option for their customers.
(GARY) to add to this... OEMs will see the benefits for the combined. For the satellite question, XM-4 was just launched and is completed. The XM-5 ground spare construction will not change.
- Q: Barten Crocket from JP Morgan:
What about pricing? When the DoJ traditionally looks at a market, they look at pricing senstivity. You've talked about an interest in raising prices... what are you looking for the pricing now? Is there an opporunity to raise prices?
A: (GARY) Clearly, "its the combination of price and product that determines how quickly you grow your subscribe base" - raising XM's prices reduced XM's conversion rate. So clearly there's a constraining factor with that as well as the competition.
(MEL) there hasn't been a price increase in 2 years. we're competing against free radio. We don't want to just charge the 10% of population more money - we want to get that 90% who hasn't subscribed. And they're price conscious. THIS IS NOT LIKE DIRECTV and DISH. This is different than that since with TV everyone is getting their signal from pay services. With radio, they're getting their content from FREE services.
Q - follow up: Looking at the ARPU line over time.... should we assume that there will be a price increase?
A: Assume that the ARPU will increase from the new services like Backseat video and traffic/weather data services. Pricing opporunities will be assessed when we look at what the consumer is willing to pay. "We don't want to do ANYTHING today that will slow down the adoption of more people coming to satellite radio." The reason we have no raised the prices because of XM, but because of those who have not yet adopted satrad.
- Q: Vijay Lehman Brothers
Looking at the licenses, is there any reason why you cant give back the 12.5 MHz?
A: Looking at the license - which is not like a congressional rule btw - it doesn't make sense to turn off one of the satellites. It doesn't work that way and there's no reason to do so. We will continue to
Q- follow up: Given the temporary authority, isn't it a viable scenario?
A: YOu don't want to cause harm to the consumer.
Q - follow up2: What is the surviving serivce?
A: JUST TO MAKE THIS CRYSTAL CLEAR. They will maintain BOTH services and it's not practical to shut down one or the other.
- Q: Loranne Mancini, with Merril Lynch
There's going to be a lot more SIRI shares on the market, how do see that going in the near future?
Interoperable receivers - what's the timeline?
(MEL) On the subject of free cash flow, it gives us a lot more capabilities to work with - such as in buying back the stock.
We're constantly coming out with new products. Tehre's a team in Boca Raton whos working on the interoperal radio, and we're looking at bringing it to market as fast as we can. We would be willing to bring it to market as soon as we have regulatory approval.
(GARY) We're trying to match up as elegantly as possible the entire range of content for the consumer. There will be economic incentive to do this as rapidly as possible.