XM Satellite Radio and WorldSpace Inc. have completed a broad cooperation agreement under which XM is investing $25 million immediately into WorldSpace.
XM has the option of purchasing an estimated additional $37.5 million in WorldSpace stock — under certain conditions — following WorldSpace’s planned initial stock offering this year, the two companies announced July 19.
WorldSpace is planning an initial public offering of 8.8 million shares of stock, priced at between $18 and $20 per share, on the U.S. Nasdaq market to finance a new business plan that is focused on India and, at a later date, China and perhaps Europe. The company’s two existing satellites provide radio programming in Asia and Africa.
WorldSpace’s initial stock offering, which is being managed by UBS Investment Bank, originally was intended to raise $100 million when the offering was first registered with the U.S. Securities and Exchange Commission (SEC) in April. The company said June 27 its introductory share price would be between $16 and $18. In a July 19 amended filing to the SEC, WorldSpace announced that it was increasing its per-share price to the $18 to $20 per share range and now expects to raise between $158 million and $176 million from the stock sale.
Washington-based WorldSpace and XM Satellite Radio, also of Washington, have a long-standing agreement under which XM uses WorldSpace technology under a licensing agreement.
XM has turned its WorldSpace relationship into a successful, if not yet profitable, business, reporting a net loss of $244 million on revenues of $642 million in 2004. The company reported it had more than 4.4 million subscribers as of June 30.
WorldSpace, whose satellites were launched before the XM spacecraft, continues to struggle. In 2004, it reported a loss of $577.4 million on sales of $8.6 million. A principal source of cash for the company has been the sale of its XM stock. It is one of XM’s founding shareholders but sold its XM interests in 1999.
In its revised SEC filing, WorldSpace says that as of June 30 it had more than 63,000 subscribers, including 27,000 in India, 26,500 in Africa and 2,000 in the Middle East. The company reported in April that subscribers totaled 53,000 as of Jan. 1.
WorldSpace says it is the only company to have a satellite-radio broadcast license in its coverage area, except for national licenses issued to others in South Korea and Japan. The new cooperation accord calls for XM to assist WorldSpace in designing an operational chipset for WorldSpace’s next-generation satellite radios and in developing technology for ground-based signal amplifiers to permit customers out of satellite range to receive WorldSpace programming.
WorldSpace says it will need both the new chipset technology and a ground-repeater design as it enters the Indian market with a new, subscription-based business plan. The company also hopes to duplicate the success of XM and Sirius Satellite Radio in the United States by offering products for the mobile users’ market in the Middle East and India.
WorldSpace has a third satellite that is fully built and in storage at its satellite manufacturer’s plant in Toulouse, France, and a fourth satellite for which parts have been ordered. XM will have the right to purchase 1.973 million shares of WorldSpace stock at the stock’s initial price on the Nasdaq market if it follows through on the chipset and ground-repeater development assistance.
Assuming a $19 initial stock price, XM’s investment would be $37.5 million. XM and WorldSpace also agreed to permit each other to invest in the other’s future regional satellite businesses – beyond the United States and Canada in XM’s case, and those beyond WorldSpace’s current market coverage, including India — should these businesses develop. This part of the arrangement expires in July 2009.
The WorldSpace-XM accord, which WorldSpace details in its amended filing to the SEC, also ends XM’s bandwidth-provision obligations to WorldSpace.
XM Satellite spokesman Chance Patterson declined July 21 to detail the terms of the bandwidth-provision agreement that is now ending with WorldSpace.
Patterson said XM is respecting WorldSpace’s no-comment period as it prepares for its initial stock offering.
“We are making a strategic investment in WorldSpace to give us an important opportunity to participate in global markets for satellite radio,” Patterson said.
WorldSpace spokeswoman Judith Pryor said the company could not comment on its relationship with XM beyond its SEC filing.