With the merger almost a certainty now (we always said that it was), Sirius Satellite Radio (including XM) has finally spoken about its latest view on savings, saying that during 2009 there will be net savings, after costs, of $400 million, most of which will go to the bottom line, creating EBITDA of around $300 million. The company says that it will be cash positive prior to capex investments during 2009.
“The upside potential from this merger is significant. In addition, the synergies, adjusted EBITDA and free cash flow are expected to continue to grow in subsequent years, and we look forward to providing more detail of this growth in coming months,” said Mel Karmazin, Sirius Chief Executive Officer and already announced as CEO for the combined Sirius and XM.
The deal’s completion rests on final FCC acceptance, and some debt refinancing for XM, both of which now seem likely, although conditions raised by the FCC may have costs associated with them.
Our own assessment of the merger was that it would be cash generative overnight, driven by a decrease in spend on programming, an increase in advertising revenues, a reduction in the spending on terrestrial repeaters, and more seatback in-car video services, and GPS location services, plus a small reduction in both churn and customer acquisition costs. There will eventually be device innovation with Wi-Fi and potentially Wi-Fi VoIP phone services added.