A few months after XM Satellite Radio and Sirius Satellite Radio merged south of the border, Canadian investment banks were hired to look at a combination of their northern counterparts. That review was expected to take a few months. Ultimately, it took a few years.
Everyone knew a merger was coming, it was just a matter of when. So what took so long?
Business strategy was a big factor, people in the investment banking community said. When the two U.S. firms merged, there was a battle within the Canadian satellite radio world. Sirius Canada focused on straight retail sales, which simply required people to sign up with the credit cards. XM, however, focused on OEMs, or original equipment manufacturers, otherwise known as auto makers. When a new vehicle was sold, XM tried to make sure a satellite radio unit was in it.
Since the merger, OEMs have taken off and that put XM Canada in the driver’s seat. Now the Canadian merged company, which will trade as part of Canadian Satellite Radio Holdings Inc. , XM Canada’s parent, with a focus on selling more units through autos.
Although investors expected a Canadian merger as soon as the U.S. deal was announced, sources say the two Canadian firms wanted to take some time to see if the combination would actually work. It has. Savings have been estimated between $700-million to $1-billion after stripping out the costs of merging, and that success finally propelled the Canadian companies to act.
Cost synergies here are estimated to be much lower, around $20-million, or about 10 per cent of the pro forma cost base. The Canadian firms don’t benefit from the huge satellite infrastructure savings and the lower programming costs, but the merged firm said immediate synergies should come from marketing and general expenses.
The Canadian deal is being sold as a merger of equals, but the final split is actually skewed 58 per cent to 42 per cent, with Sirius holding the upper hand. That difference is simply a result of XM holding about $130-million in debt, while Sirius has none. (The U.S. transaction was split 50-50.)
National Bank Financial served as financial adviser to Canadian Satellite Radio (XM), and Canaccord Genuity provided the board with a fairness opinion. TD Securities advised Sirius Canada.