(Corrects dateline.)

Feb. 19 (Bloomberg) -- Sirius Satellite Radio Inc. agreed to buy larger rival XM Satellite Radio Holdings Inc. for $4.57 billion in stock to combine the only pay radio companies and stem billions of dollars in losses.

Mel Karmazin, chief executive officer of New York-based Sirius, will be CEO of the combined company, and Gary Parsons, chairman of Washington-based XM, will continue as chairman, the companies said today in a statement.

Sirius and XM faced pressure to merge after losing a combined $7 billion to attract subscribers over the past eight years and signing talent including Howard Stern and Oprah Winfrey. The merger will face antitrust scrutiny and must also be approved by the U.S. Federal Communications Commission.

``To make themselves stronger in the long term, they really need to benefit from the synergies a combination offers them,'' said David Bank, an analyst at RBC Capital Markets in New York. ``I see it as a huge positive.''

The combined companies will attempt to cut costs by negotiating new programming agreements and deals with automakers who install the devices in cars, said Bank, who rated XM shares ``outperform'' and Sirius ``sector perform.''

Under the terms of the accord, which the companies describe as a merger of equals, XM investors will receive 4.6 shares of Sirius common stock for each share they own. Shareholders of each will own about 50 percent of the combined radio company.

New Board

The deal values XM at $17.02 a share, based on Feb. 16 closing prices, the last trading day in the U.S. markets before Presidents Day. That represents a 22 percent premium over XM's close of $13.98. Sirius closed at $3.70. The companies have combined debt of $2.56 billion and cash of about $638 million as of September.

The new company's board will consist of 12 members, including Karmazin, 63, and Parsons, 56, four independent members named by each company, and one representative from each of General Motors Corp. and American Honda. Hugh Panero, 50, CEO of XM, will continue in his role until deal closes, which both companies expect this year.

Sirius and XM will operate independently until the deal is completed, the companies said. The name of the combined company and the location of its headquarters will be decided later.

Regulatory Scrutiny

Sirius and XM anticipate a rigorous review by the Justice Department and FCC. The companies said today they are competing for customers in a broad media landscape that includes products such as Apple Inc.'s iPod, cell phones that play music and Internet music stations.

``What this is really about is war,'' said Karmazin, who has spent four decades in the radio industry and was president of Viacom Inc. before joining Sirius in November 2004.

When the FCC authorized XM and Sirius to offer satellite radio service in 1997, it barred the two companies from merging. The FCC envisioned the two would compete with each other and provide consumers with an alternative to traditional radio.

The proposed merger will face a high level of scrutiny at the FCC, Chairman Kevin Martin said in an e-mailed statement.

``The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices,'' Martin said.

Sirius and XM will argue the competitive landscape has changed since the commission passed the rule barring them from combining 10 years ago.

Competes with iPod?

``From a government perspective, it's tricky,'' said Blair Levin, a media policy analyst with St. Louis-based Stifel Nicolaus & Co. ``Does something like the iPod really compete with satellite radio?'' If federal regulators decide it doesn't, the deal is likely to be rejected, Levin said.

Shares of both Sirius and XM declined 47 percent last year on concern over losses and subscriber growth.

XM finished the year with 7.63 million subscribers, shy of the 7.7 million to 7.9 million it had forecast in November. The number of users rose 29 percent from 2005.

Sirius subscribers increased 82 percent to 6 million last year, in line with its forecast.

As of Feb. 16, Sirius had a market value of $5.2 billion, while XM was valued at $3.75 billion.

To contact the reporter on this story: Christopher Stern in Washington at

Last Updated: February 19, 2007 22:03 EST