The transaction, which faces regulatory scrutiny and objections from terrestrial radio companies, gives4.6 for each XM share held.
The deal has Sirius paying about $4.6 billion in stock for XM, or a 21.7 percent premium to XM's closing share price of $13.98 on Friday, based on shares outstanding in the latest regulatory filings.
Veteran media executive Mel Karmazin, currently Sirius' CEO, plans to lead the combined company as CEO, while Gary Parsons, now chairman of XM, plans to be chairman of the new company. Hugh Panero, XM's current CEO, plans to continue in his current role until the merger closes.
The merger would create a company with about $1.5 billion in 2006 revenue and an enterprise value of $13 billion, including $1.6 billion in net debt.
"This combination is the next logical step in the evolution of audio entertainment," Karmazin said in a statement. He said it would create "unprecedented choice for consumers."
The deal will face tough regulatory scrutiny. The satellite radio licenses prevent one entity from owning them, however, Federal Communications Commission Chairmansaid last month that its rules are open to change.
"I think it's a close call, but more likely than not, I think the Justice Department and the FCC (will) approve it," said Blair Levin, an analyst at Stifel Nicolaus and a former FCC chief of staff during the Clinton administration.
The National Association of Broadcasters, which represents local broadcast radio stations, immediately criticized the tie-up because it would concentrate the licenses into one company and accused them of seeking a government bailout.
"When the FCC authorized satellite radio, it specifically found that the public would be served best by two competitive nationwide systems," NAB spokesman Dennis Wharton said.
"Now, with their stock prices at rock bottom and their business model in disarray because of profligate spending practices, they seek a government bailout to avoid competing in the marketplace," he said.