On January 12th, 2011 Sirius XM Radio (NASDAQ:SIRI), submitted a Certificate of Ownership and other documents to complete the merger with XM Satellite Radio. The question now is: What will be the significance and outcome of this action that will take the satellite radio company, its investors, and its burgeoning subscriber base to the next level? The merger itself completes on paper what Mel Karmazin, CEO of Sirius XM, and his management team, have been working towards since the approval of the merger over two years ago in August 2008.
While most of what is written here and on other satellite radio blogs comes mostly from an analyst or investor’s viewpoint, this merger filing brought little more than a yawn to most following the company. While the filing was reported here to keep readers informed, it came without any press release or fanfare from the company. Now that time has passed for me to consider the implications of the announcement beyond its impact on investors, I can see this event from an even more important perspective – that of the subscriber and potential consumer of Sirius XM Radio’s services.
Over the last two years there has been much discussion and speculation over the current condition of Sirius XM’s dual programming platforms. The company presently has separate customer service and accounting functions, complete with two unique websites, each serving a discreet and completely separate group of customers. It has always seemed inefficient and to date, the company has been able to manage the inconvenience to consumers as evidenced by its churn of under 2.0%.
Having been granted the right to merge by the necessary government approving authorities, has done little thus far to convince consumers that the “merged” companies are operating as though they were one. While most can easily understand that converting all consumers to either of the two services (platforms) at this time is not practical, there really has been little evidence of any effort to merge any of the services up to this point. At least that is how it would appear from the outside looking into the company’s operations from a subscriber and potential consumer’s perspective.
Questions regarding the issue of integration have been answered by management as requiring the company to be methodical in its approach. It is important for them to not activate any of the covenants and provisions in their bondholder and debt documents, which would then have unintended consequences, potentially costing millions to remedy. Given the amount of debt, and volume of debt documents that the company has possessed, this has been a reasonable explanation for now.
Taking a closer look at the required full disclosure filings with the SEC, it would appear they have been very methodical indeed. They have been restructuring debt, and selecting those agreements with the most restrictive covenants to settle first. Interest rates alone have not been their sole incentive for removing debt. As they have successfully executed the debt restructuring, they have also quietly merged the XM side of the company during 2010. On April 15th, 2010, the first merger came in an 8-K filing, where XM Satellite Radio Holdings merged into XM Satellite Radio Inc. This was also a “hardly noticed” event at the time.
These filings generally come with Supplemental Indenture submissions to the Trustee. For this first filing, only the 10% PIK notes were involved, and they were then fully paid in June 2010. This most recent filing came with supplemental indenture submissions for all of the remaining XM debt instruments guaranteed by XM Satellite Radio, and now converting the liabilities to its successor, Sirius XM Radio Inc.
"It is my opinion that with these merger actions complete, the company is now free to merge any and all business functions as it deems appropriate, without legal consequence. With the SEC Form 15 filings, terminating the existence of both XM Satellite Radio Holdings Inc, and more recently XM Satellite Radio Inc., the company is now free to pursue the development of its 'one company' brand. I am expecting a series of Consumer and Subscriber based enhancements to be announced as a result that will improve the way that Sirius XM supports its services."
Dennis “Cos” Costa, author Newmarketplayers.com
So what types of customer-friendly initiatives can we expect from a company that is now unencumbered from the need to maintain two separate companies? What would be your first choice knowing that the company is already scheduled to roll out its new version of itself, in the form of Sirius XM 2.0? Here are a few initiatives that I think we will see in the upcoming weeks and months. Of course this is all speculative on my part.
- The company will announce that they are going to merge all of their customer support services. They will start by rolling out a new website. One website for both Sirius and XM products and services. You choose the service or platform based on what You the customer want, go online to one place to get it.
- A schedule for launching the Internet version of Satellite Radio 2.0 will most likely be announced shortly. On this one website, you will be able to launch your existing player, XM or Sirius, and at a time certain, move to the new 2.0 version. I would expect some premium content availability here also.
- The company will kick off an ad campaign focusing on existing subscribers, but wanting to also focus on enticing new subscribers to all of their platforms: smart-phone streaming, Internet / Wi-Fi, plug and play retail, and plans to grow the certified pre-owned markets.
- They will either tie these announcements to a pre-release of Q4 subscriber numbers and financial performance, or through a series of announcements in the form of email and press releases.
While I understand that this is all speculation, the one thing I do know is that with the merger now complete, the company is finally free to develop its brand and give its subscribers a more enhanced and focused service. The company in my opinion, is about to create some “buzz” and give subscribers, analysts, and investors something to talk about. As important, I believe the company is about to give the competition even more to worry about.
Disclosure: I am long SIRI.