Sirius Satellite Radio CEO Mel Karmazin has often said he would like to purchase XM Satellite Radio, the only other major player.  Today he may very well have gotten his wish.

Sirius would buy XM for $4.6 billion in stock, which gives current XM stock owners about a 20 percent boost on their shares.  The new company would have 14 million subscribers.

Under the deal, Mel Karmazin, the more charismatic of the two companies’ CEOs, would be the CEO of the new company, while XM Chairman Gary Parsons would retain his position in the new company.

The deal needs to get Federal Communications Commission approval to go through.

Sirius and XM stocks have been battling low stock prices, and most stock analysts were rooting for this merge to occur for quite some time.

XM and Sirius’ monthly plans cost $12.95.

My Analysis:

Sirius will likely try to get FCC approval with the following argument:

Currently, satellite radio has plenty of competition.  There’s traditional radio, wireless internet, cell phones enabled with radio/TV, High Definition Radio, and now even podcasting.  The combination of both companies will still only have a mere fraction of the total listeners to radio (in all formats).  This would hardly qualify as a monopoly when viewed that way.  Perhaps only a monopoly of a certain type of technology (but then, the iPod nearly has this as well).

The key to growth for Sirius will be two-pronged:

People mostly listen to radio in two environments.  The top environment is while in a car, and the second is at work.  Sirius will be able to tackle these markets better if it successfully merges with XM.  Already, XM and Sirius have individual deals with auto makers like GM to place navigation and satellite radio systems in their cars.  With a merge, they will no longer be competing against each other, rather against services like OnStar and the native navigation systems available in most cars today.

As for business, Sirius has subscription plans that cater to offices or eateries.  These plans cost very little in terms of the entertainment value commercial free music or talk radio has for these businesses.  Expect Sirius’ advertising to capitalize on this.

The personal satellite radios will run into a lot more competition (and may very well fail) because of Microsoft Zune (which has wireless capability), Apple iPod (which has wireless in the works), and a handful of other companies who make similar systems based on internet or High Definition radio.

Why would Sirius and XM announce this even if the regulations quite possibly won’t allow it?

Simple.  This is a win-win situation for Karmazin.  If the deal does go through, the stock will skyrocket, and he’ll be the CEO of an even larger company. If the deal doesn’t go through eventually, here is what will happen: both stocks will still go up now. When the deal is disapproved, the stocks will plummet, BUT will have more value than they did before this deal was announced.  Why? Because both companies are on the verge of profitability right now…and by the time this deal would be shot down by the FCC their stocks will be stronger than they were before the deal announcement regardless. This is a “cover” for the stock in the worst case scenario, which allows the stock price to go up for enough time for the true value to rise.