After months and months of speculation, Sirius and XM have announced that the two satellite radio giants will combine into one company under a $13 billion "merger of equals." Under the terms of the agreement, XM shareholders will receive a fixed exchange ratio of 4.6 shares of Sirius common stock for each share of XM they own. XM and Sirius shareholders will each own approximately 50 percent of the combined company.

Mel Karmazin, currently Sirius CEO, will become Chief Executive Officer of the combined company and Gary Parsons, currently Chairman of XM, will become Chairman of the combined company. The new company's board of directors will consist of 12 directors, including Karmazin and Parsons, four independent members designated by each company, as well as one representative from each of General Motors and American Honda. XM CEO Hugh Panero will continue in his current role until the anticipated close of the merger.

In a statement, the combined satcaster said that further management appointments will be announced prior to the deal's closing. The companies will continue to operate independently until the transaction is completed and will work together to determine the combined company's corporate name and headquarters location.

"We are excited for the many opportunities that an XM and Sirius combination will provide consumers," Parsons and Panero said in a joint statement. "The combined company will be better positioned to compete effectively with the continually expanding array of entertainment alternatives that consumers have embraced since the Federal Communications Commission (FCC) first granted our satellite radio licenses a decade ago."

"This combination is the next logical step in the evolution of audio entertainment," added Karmazin. "Together, our best-in-class management team and programming content will create unprecedented choice for consumers, while creating long-term value for shareholders of both companies. The combined company will be positioned to capitalize on Sirius and XM's complementary distribution and licensing agreements to enhance availability of satellite radios, offer expanded content to subscribers, drive increased advertising revenue and reduce expenses. Each of our companies has a strong commitment to providing listeners the broadest range of music, news, sports and entertainment and the best customer service possible. We look forward to sharing the benefits of the exciting new growth opportunities this combination will provide with all of our stakeholders."

The companies promise greater programming and content choices, as well as improvements on products such as real-time traffic, rear-seat video and advanced data services. They also promise the development and introduction of a wider range of lower cost devices and receivers. They also say that the merger "will enhance the long-term financial success of satellite radio by allowing the combined company to better manage its costs." The satcasters also believe that the merging will "better position satellite radio to compete for consumers' attention and entertainment dollars" in the marketplace.

The transaction is subject to approval by both companies' shareholders, the satisfaction of customary closing conditions and regulatory review and approvals, including antitrust agencies and the FCC. Pending regulatory approval, the companies expect the transaction to be completed by the end of 2007.

Both companies will report their quarter and year-end financial numbers early next week. Last Friday, financial analyst firm Bear Sterns released a note suggesting that now was the best time for a merger to take place, before the fiscal reports come out, and giving plenty of time for regulators to work out the kinks. If announced now, Bear Sterns projects that the deal could close and become official by the middle of 2008.

The merger is expected to face intense scrutiny from the FCC. Just last month, FCC Chairman Kevin Martin suggested that a merger would be blocked by rules the Commission put in place when satellite radio was starting to become a reality. He noted the rules specifically state that there cannot be "one entity owning both of those licenses" and there must be at least two satcasters in operation.