On November 24, 2010, XM Canada and Sirius Canada Inc. agreed to a merger of companies. This merger, unlike that of the US, took a lot of time and required Canadian ownership so all previous negotiations had failed. The merger between the two companies formed SiriusXM Canada. The new company believed they would have a total subscriber base of 1. 7 million and offer between 120-130 channels. As of today SiriusXM Canada has a subscriber base of 2. 7 million people. XM Canada, which was a subsidiary to Canadian Satellite Radio Holdings Inc. was founded in 2002 and the ownerships was broken down in three different ways.
John Bitove owned 58 percent, XM Radio owned 23 percent and the Toronto Stock Exchange owned the remaining 19 percent. Sirius Canada Inc. was established in 2004 and had two main investors, Canadian Broadcasting Corporation and Slaight Communications. In 2010 when the two companies merged the ownership was changed to better suit both companies. Canadian Satellite Radio Holdings Inc. owned 22. 7 percent, SiriusXM owned 37. 1 percent, CBC owned 15 percent, Slaight Communications owned 15 percent and the remaining 10. percent was owned by other investors.
Prior to merging in 20 10, XM Canada had approximately 590,000 subscribers and had a lineup of around 130 channels. The content was available through the internet as well as compatible receivers and smartphones. This service was available on over 150 different vehicles as well consumer products through companies such as Best Buy, Walmart etc. Even with constant growth and new rules and regulations regarding market costs and subscriber acquisition costs the company was still losing money.
XM Canada had to look in on itself and see what the US was doing was going to work for them. Sirius Canada offered their subscribers 120 channels including channels that were primarily focused on Canadian content as well as content provided by the CBC. Even with Sirius Canada’s improved financial status and growing customer base the merger seemed to be the best for both companies. The merger would pretty much monopolize the auto industry as well as any aftermarket satellite receivers. The mission of the new company is similar to that of the US company.
The mission states that the objectives are to improve the product offering to customers, to reduce operating expenses and to maximize revenue through a unified market strategy. Was the merger worth it? Was the merger the best thing that could happen to both companies? The following pages explain whether or not this is the case. Upon reading the case the merger has several strengths, weaknesses, opportunities and threats. When the merger occurred a decision had to be made regarding the members that are to run the company and make sure it succeeds.
The decision was made to make sure the most qualified and skilled candidates were retained. This was done by addressing the uncertainties of key employees during the merger. XM Canada was primarily focused on selling through the automotive network but relied heavily on self-paying subscribers. Sirius Canada was also involved in the automotive network but put a strong emphasis on selling directly to the customer through the aftermarket retailers. However, during the merger both parties were able to take over the automotive network and surpass expectations.
This achievement would see revenues of approximately $55 million and show Equity before taxes and interest at around $5. 5 million. Total debt would be around $150 million however, 12 month expectations would have the equity around $200 million. These would be lofty expectations if it were not for what the US has shown thy can do with a steady increase in revenue since the merger. Being that the only two satellite companies merged, market share would be minimal and it would appear as though Sirius XM Canada would corner the market.
With the merger taking place, the top executives from either company would be under the safe roof and would be able to take knowledge and skills to make SiriusXM the best in Canada. With the long term contract with the automotive network new entrants into the satellite radio market is extremely low as they would experience low economies of scale. With strengths come weaknesses and the merger as well as SiriusXM Canada there are some concerns. Upon time for both companies to merge, XM Canada was splurging money to the tune of a net loss of $44 million.
Sirius Canada was showing a net gain of $12 million and once these companies merged there would have to be some major changes to turn the companies around. Both companies relied heavily on subscriptions through the Automotive network and they saw a large decline as most people were not renewing the subscription once the free trial ended. Before the merger, the US SiriusXM Radio saw a 90 percent decline in subscriptions through the automotive network. The US satellite companies also saw a loss of $3. 8 billion during the 5-year period before the merger.
A large amount of debt also hovered over the merger as both companies carried over nearly $41 million in combined net loss. The opportunities are endless as both companies would be merging their already growing subscribers. Being able to be played on multiple devices such as iPhones, Blackberry’s and Android devices make SiriusXM Canada a commodity to have. Since competitors, such as Pandora, iHeartRadio are internet based, SiriusXM Canada had to step into the limelight and show they too can be played anywhere. Electronic suppliers have started to include satellite radio into their receivers.
This type relationship as well as the relationship with the suppliers and automotive companies is important to keep costs low and customers happy. Having more than one outlet for the use of satellite radio helps maintain a higher level of success. Unfortunately, the threats outweigh the opportunities for now. With companies such as Pandora, iHeartRadio, Amazon Prime Music, SiriusXM Canada has to give reason to consumers as to why they should be chosen. Pandora and iHeartRadio are both free apps that can be downloaded and played anywhere.
SiriusXM Canada is still a paid subscription and with a company that advertises no commercials they have a lot of talking in between songs. Even devices such as mp3 players and SD cards are threatening to Sirius XM Canada as people can download music and play them practically anywhere. SiriusXM Canada has a key advantage when it comes to being able to survive in a market that is ever changing. SiriusXM Canada charge for commercial free radio. Granted there are “free” channels such as Pandora and iHeart Radio, however these channels have commercials and offer to be commercial free for a fee.
SiriusXM Canada also has connections through several main electronic manufacturers. This connection help keep their channels in over 150 vehicle brand and styles. When listening to Pandora or iHeartradio the consumer is either using data from their mobile connection or listening through their internet connection at either home or work. This “free” radio is still costing the consumer money whether it be from their cell phone bills or internet bills at home. SiriusXM Canada has several pricing plans to help the consumer choose what is best for them. Competition in Canada, especially in the satellite radio industry, is very hard to come by.
As mentioned earlier in the paper, Canada has to be part of any decision as to the radio or satellite companies. When XM Canada started in 2002 they were the sole company to the satellite radio waves, however in 2004 Sirius Canada came into the picture. This competition was both good and bad. Automotive dealers had to choose which brand to go with while on the consumer side their business strategy was totally different. Sirius Canada took a direct approach and cornered the retail side while XM Canada stayed within the Automotive network. This decision was detrimental to their business plan.
Consumers were leaving left and right from XM Canada while Sirius Canada was showing improvement in the retail side. The merger aided both companies in that only one company cornered the automotive network and the stronger of the companies now handled the full retail side of things. When looking at the numbers before the merger it appears that XM Canada would not be able to survive on their own. They were splurging money and could not recoup the loss from the operating expenses. However, Sirius Canada was doing great considering they had more revenue than they had expenses and started in the market 2 years after XM Canada.
Upon looking at the balance sheets regarding both companies the current ratio for XM Canada was 23% and 44% for Sirius Canada. With these numbers it would appear Sirius Canada had a better opportunity to meet it current financial liabilities. However, when Mark Redmond started to inform the public about the amount of new debt to be added to the old debt. The new debt is $150 million whereas the old debt totaled around $118 million. With the new proposed debt to be accumulated had some advantages such as the interest rate. The interest rate would decline even though the debt continues to grow.
Part of the agreement prior to the accumulation of new debt is to refinance the old debt. Since the merger to make Sirius XM was on the horizon refinancing could put the merger in jeopardy. Redmond had several different ideas in regards to financing and would have to make sure the strategy used improved share liquidity and future equity offerings. The goal of any company is to finish the year with a profit and not a deficit. When the merger occurred in 2010 the credit markets had tightened and the merger was at risk of not happening.
Since the SiriusXM Canada merger required debt refinancing the issuance of the bonds could put the merger at jeopardy had there been any kind of delay. Redmond found that the liquidity of Canadian Satellite Radio Holdings Inc. shares could pose as a challenge to keep the small company afloat. With any type merger the overall outcome needs to have a positive outlook however in some cases this is not true. When the merger occurred the new company took a hit with the amount of overall debt however as we will see in the following pages the company had substantial growth and increase in income.
In 2016 SiriusXM Canada had approximately 2. 7 million subscribers which is a far cry from the 260,000 back in 2009 before the merger. Since the merger, Sirius XM Canada has around 70 percent penetration in the automotive network with around 2800 dealers enrolled in the pre-owned vehicle program. SiriusXM Canada not only plays in your vehicle but in your home, work, through your phone, etc. In 2010 the EBITDA was estimated around $6. 6 million and in 2016 was estimated at around $81. 3 million. Revenue has also increased since the merger as in 2010 the estimated revenue was around $202. million and in 2016 the estimated revenue is around $334. 7 million.
SiriusXM Canada is determined to grow and is in the process of expanding the addressable market, having new innovating content and launching new technology. In 2010 Sirius XM Canada had around 122. 8 million shares outstanding and in 2016 there are approximately 128. 6 million shares outstanding. SiriusXM Canada currently has around 8 million vehicles equipped with Satellite radio and in 2018 they are predicting 11 million cars with be equipped with satellite radio. This type growth is why they are the leading in media subscription business in Canada.
Was the merger worth it? In the early parts of 2010, XM Canada was showing a net loss of around $44 million and Sirius Canada was showing a net gain of around $12 million. It appeared XM Canada would have to file for bankruptcy, whereas Sirius Canada was showing minimal growth. Would the merger benefit either company? From the time of the merger through the year 2016 SiriusXM Canada has had a constant growth. In 2010, the combined net loss of both companies was around $41 million. Since that time SiriusXM Canada has grown to have a net gain of around $46 million as of 2016.