The last time we heard from Sirius Satellite Radio CEO Mel Karmazin, he predicted that Sirius’ acquisition of XM Satellite Radio would be completed before the end of 2007. Now he’s not making any predictions, but said he remains optimistic that the Department of Justice will complete its review soon and that the merger will clear Federal Communications Commission muster as well.
If the DOJ decides to oppose the merger–unlikely in Karmazin’s estimation–he said Sirius and XM will still have their day in court. The review itself has been exhaustive: Karmazin says DOJ investigators have spoken to talent, OEM partners, retailers and the labels, all of whom support the merger.
“I remain very optimistic that the American people are better with consolidation–the fact that the National Association of Broadcasters has spent so much money to try and stop this merger clearly shows we are a competitor to them, and it clearly shows the market is broad,” he says.
Citibank’s introduction notes SIRI surpassed 8.3 million subs during Q4, exceeding estimates.
7:15 pm: First question: What’s the status of the merger and how fast can you close the deal if it is approved:
K: “I can tell you there is no decision at the Department of Justice. Timing: I have no idea. I’m not going to give it a guess. This is a deal is ripe to be granted and we should be able to close. We will probably close the evening we get FCC approval. We have been waiting so long we are ready to close.”
More on the process: The Department of Justice traditionally gets to review media mergers first, then the Federal Communications Commission. As FCC chairman Kevin Martin said today, the FCC doesn’t have to go second with its review, but it customarily does, and will in the SIRI-XMSR case.
7:24 pm: If deal isn’t approved are you prepared to go to court to get it approved?
“We hope the DOJ gives us a fair shot. If they decided to stop the merger they would go to court to stop us from closing. We would rather them approve it, but if they don’t we would at least like to have our day in court. we we think is unfair is they do nothing and continue to stretch it out.”
7:26 pm: On post-merger synergies: “I can tell you that it is in the hundreds of millions of dollars; the value of the efficiencies are greater than the market cap of one of the two companies,” Karmazin said.
7:30 pm: Asked whether he would revisit the equity markets if the merger isn’t approved. Karmazin says revenue is “growing dramatically,” while costs are “growing less dramatically.” He says he would be very reluctant to tap equity markets. He hasn’t tapped the markets since he became CEO in 2004. Says operating cost is $1.2 billion and revenue of more than $600 million in 2007.
7:32 pm: Karmazin is in sales mode, and Citi analyst isn’t slowing him down. Says he loves the business, of course, that both the OEM and retail channels are strong. Says SIRI would add 6m subs in the next three years just from new car activations alone.
7:34 pm: First audience question: The talent deals have been generous. Is there an opportunity to revisit those deals?
K: “I think we are smarter today. When some of these deals were done Sirius didn’t have any subscribers. The earlier deals were done without much knowledge about what listeners want. When the next cycle comes we will know more.”
“What is going to make us a winner is that we have the best radio on radio. I am betting that radio is going to continue to be a business. We are going to be a successful radio company and our content is going to drive it. The Howard Stern deal–and I didn’t do it, I walked into the company after it was done–I will tell you it more than pays for itself.”
7:40 pm: Assuming there is no merger, at what point do you have four straight quarters of positive cash flow?
K: “Because of the merger we have not provided guidance. I think I have given some hints. We have a great deal of leverage in our business. Take the top line revenue growing at double digits. Each year you will see we will come closer and closer to free cash flow positive. Our sub acquisition costs are going down. I came to this business to make it profitable, not to spend money on content.”
7:45 pm: With the improvement of in-car technology you will face competition from HD radio , iPods and Internet radio. How do you keep competitive?
K: “Can I take your question to the DOJ? The time people spend listening to the radio is in the car. They thought cell phones would compete with car radio, and 8-track tapes. I think it comes down to the content. if you take look at our content–there is nothing on the Internet or on terrestrial radio that would compare.”
7: 50 pm: A question about satellite radio royalties. Karmazin says satellite radio got off a lot easier than most had expected. He says don’t expect Congress to support royalties for terrestrial radio (as the music labels and the RIAA want) because it would be terribly unpopular in an election year.
7:54 pm: The interview wraps. Few crowd questions and very general queries from the Citi moderator. Karmazin basically gave his sales pitch. That’s his strong suit, but we’ve heard it already.
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