DOW JONES NEWSWIRES
TORONTO (Dow Jones)--XM Canada operator Canadian Satellite Radio Holdings Inc. (XSR.T) has agreed to merge with closely held Sirius Canada, creating Canada's only satellite radio operator while also aiming to win more customers and cut costs.
The planned merger takes its lead from an agreement in 2007 in the U.S. in which Sirius Satellite Radio Inc., owner of Sirius Canada, and XM Satellite Radio Holdings Inc. merged, creating Sirius XM Radio Inc. (SIRI) as a way of strengthening their operations and attracting more subscribers instead of competing against each other for customers.
The combined Canadian satellite-radio company will have 1.7 million subscribers. The press release announcing the planned merger doesn't include subscriber numbers for either Toronto-based firm. XM Radio had 589,700 subscribers as of Aug. 31. Sirius Canada reported in January it had over a million subscribers. The combined entity will have pro forma annual revenue of more than C$200 million and pro forma EBITDA of about C$7 million.
"Together, Sirius Canada and XM Canada will create a stronger platform for future innovation within the audio entertainment industry through key content and programming relationships and distribution agreements with every major automaker and retailers nationwide," the companies said.
In response to the planned transaction, Canadian Satellite is up 15% to C$3.75 on thin volume of 21,450 shares, giving the company a market capitalization currently of about C$91 million. The merged entity will have a combined enterprise value of about C$520 million, including long-term debt of C$130 million, the companies said.
Canadian Satellite Radio has struggled financially, though it has shown some recent signs of improvement as a result of its efforts to make its radio programming more accessible over a greater number of online and mobile-device platforms. In the fiscal fourth quarter ended Aug. 31, Canadian Satellite posted a loss of C$7.1 million, or an adjusted operating loss of C$653,000, which excludes amortization costs and stock-based compensation to employees among other items. That said, revenue rose 8.2% in the quarter to C$14.9 million, benefitting primarily from growth in auto sales as many cars are sold with satellite radio.
After the deal closes, Sirius Canada will hold a 58% equity interest in Canadian Satellite Radio. The ownership structure of Canadian Satellite will be as follows: CSRI, an entity controlled by Canadian Satellite Radio Chairman John Bitove, will hold 30% voting interest and 22.7% equity interest; CBC/Radio-Canada will hold a 20.2% voting interest (15% equity interest); Slaight Communications will have a 20.2% voting interest (15% equity interest); Sirius XM Radio will have a 25% voting interest (37.1% equity interest); with the remainder being widely held.
The transaction is expected to be completed sometime next year, pending regulatory and shareholder approvals. Mark Redmond, current president and chief executive of Sirius Canada, will hold those posts at the merged company.
CSRI currently holds a 77% voting interest in Canadian Satellite Radio and has entered into a voting support agreement with Sirius Canada and its shareholders to support the transaction subject to certain terms and conditions.
