Almost two and a half years since their US sister companies completed their merger, Sirius Canada and XM Canada have announced that they too are to join forces.
The two satellite radio companies have entered into a definitive agreement to combine the…
Almost two and a half years since their US sister companies completed their merger, Sirius Canada and XM Canada have announced that they too are to join forces.
The two satellite radio companies have entered into a definitive agreement to combine the companies in an all-stock merger of equals with an aggregate enterprise value of approximately C$520m, including C$130m of debt.
Under the terms of the agreement, Sirius Canada shareholders will be issued treasury shares of XM Canada’s parent company, Canadian Satellite Radio Holdings (CSR), giving them a majority 58% equity interest in the combined company.
On completion, the ownership of CSR will consist of: CSRI Inc, an investment vehicle controlled by XM Canada’s chairman John Bitove, with 30% of the voting interest (22.7% equity interest); US-based Sirius XM Radio with 25% of the voting interest (37.1% equity interest); public broadcaster CBC/Radio-Canada with 20.2% voting interest (15% equity interest); Slaight Communications, a former radio broadcaster and now an internet and satellite radio holdings company, with 20.2% voting interest (15% equity interest); and the remainder being held as free float.
The board of directors will comprise two directors nominated by each of CSRI Inc. and Sirius XM, one director nominated by each of CBC/Radio-Canada and Slaight Communications and three independent members.
The combined entity will have a total subscriber base of over 1.7 million and pro forma revenues of more than C$200m with an estimated EBITDA of approximately C$7m. The merger is expected to yield synergies of approximately C$20m within 18 months of completion.
In order for the proposed transaction to go ahead, however, CSR first needs to successfully refinance its existing debt. To that end, the company is seeking to exchange its outstanding unsecured senior notes of US$69.8m for new unsecured senior notes.
The majority of holders of the outstanding bonds have already agreed to tender their notes in the exchange offer. Once complete, CSR then plans to issue just under US$60m of new unsecured senior notes via a private placement to institutional investors.
Following the conclusion of the bond issue, a CSR shareholder vote on the merger agreement is due to take place in February 2011 with both Sirius XM Radio and CSRI Inc., which currently holds 77% of the CSR’s voting interest, having already committed to vote in favour of the transaction.
The merger will then be subject to regulatory review, including Canadian Radio-television and Telecommunications Commission approval.
The two companies will hope that they do not suffer the same regulatory purgatory that befell Sirius XM Radio when the FCC took around 18 months to approve the planned merger. Until the CRTC gives its approval, the companies will continue to operate independently.
Mark Redmond, the current president and CEO of Sirius Canada and future president and CEO of the merged company, commented: “The benefits of a merger are clear and together we’ll be better able to create more growth and opportunity for shareholders, accelerate technological innovation and ensure that satellite radio is able to compete in the rapidly evolving audio entertainment industry. This combination is the next logical step in the evolution of satellite radio in Canada.”
Michael Washinushi, CFO of both XM Canada and the new company, added: “The synergies and our intention to exchange the outstanding senior notes will create a significantly stronger balance sheet for the company, enabling us to further pursue high-return growth opportunities.”
National Bank Financial Inc. acted as financial adviser to CSR and the CSR board on the transaction, with Canaccord Genuity advising both the CSR board and the CSR committee of independent directors and providing a fairness opinion.
TD Securities acted as the exclusive financial adviser to CBC/Radio-Canada and provided financial advice to Sirius Canada shareholders.
