Shares of XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. plunged Wednesday afternoon after the chairman of the Federal Communications Commission poured cold water on speculation that the two companies could merge.
The stocks of the two companies, which both plunged more than 40 percent last year, have rallied in recent weeks on talk that they could attempt to merge, despite significant regulatory hurdles.
The FCC rules that created the satellite business specifically forbid a merger between the two holders of broadcast licenses, but several analysts have held out hope that the FCC could allow an exception to the rule or change it, allowing a merger to occur.
Executives at Sirius have publicly discussed the possibility of a combination, and XM executives haven’t ruled it out. A merger could save the emerging industry significant costs.
However, FCC Chairman Kevin Martin pointed out to reporters Wednesday following a monthly meeting of the commission that the licenses granted to the satellite radio companies precluded them from being combined.
Investors took the comments to mean that Martin wouldn’t embrace the idea of changing the rules, sending the stocks of both companies plunging.
XM’s shares dropped $1.69, or 9.9 percent, to close at $15.43 on the Nasdaq on nearly triple its average trading volume, while Sirius’ shares fell 29 cents, or 7 percent, to $3.86, also on the Nasdaq market and also in heavy volume.
XM and Sirius had both been stock market darlings amid promises of rapid growth, even though both have suffered huge financial losses as they spend heavily to acquire subscribers and build their programming lineups.
Sirius signed a $500 million, five-year deal with shock jock Howard Stern in 2004 and last week paid him an $82.9 million stock bonus after beating certain predetermined goals for subscriber growth.
Investors have become concerned about a softening retail market for the radios. XM also failed to meet its target for subscriber growth last year, while Sirius met a lowered target.