Satellite radio deal leaves questions

By Deborah Yao And Matthew Barakat

Published: July 30, 2008

As the purchase of XM Satellite Radio by larger rival Sirius Satellite Radio Inc. closed Tuesday, questions remained over whether the combined company can handle its $3.4 billion in debt — including $1.1 billion due next year.

Also murky was how quickly the two companies can mesh their technologies without angering consumers.

Most radios that play programming from Sirius and the former XM Satellite Radio Holdings Inc. are sold for cars, in before- or aftermarket installations, and automakers are notoriously slow to integrate new audio technology.

The nation's only two satellite radio companies have combined to become Sirius XM Radio Inc., based in New York, and trades under the ticker symbol SIRI, which used to belong to Sirius. Mel Karmazin, the chief executive of Sirius, will take the same position at the new company.

Investors sold off Sirius shares Tuesday at their lowest price in nearly five years.

"The new company is going to face a lot of hurdles, both operating as well as financing,” said an analyst.

He was disappointed by Sirius' accumulation of 280,000 net new subscribers for the second quarter, not as robust a figure as he had hoped for. He is also concerned about higher interest payments.

Sirius' $1.3 billion of debt hasn't changed, but XM has taken on more debt and replaced some existing debt with other borrowing that carries much higher interest rates. XM has $2.1 billion in total debt, up from $1.7 billion at the end of March, according to company regulatory filings.

Analysts had been counting on savings from the combination to offset higher debt costs, especially since neither has ever made an operating profit.

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