Rivals XM Satellite Radio Holdings Inc. and Sirius Satellite Radio announced Monday they would enter into a merger of equals, creating a satellite radio giant.

XM (Charts) and Sirius (Charts) said they would each own half of the combined company, which would have a market value of roughly $13 billion, including approximately $1.6 billion in net debt.

As part of the deal, XM Chairman Gary Parsons would remain chairman of the combined firm, while Sirius’ Mel Karmazin would assume the role of CEO. XM chief executive Hugh Panero will remain as CEO until the merger is completed.

The two companies, which have a combined 14 million subscribers, said they had not yet determined a new name for the combined company or where its headquarters would be located.

LOTS MORE AFTER THE JUMP!

XM shareholders would get 4.6 shares of Sirius stock for each share of XM they own.

“This combination is the next logical step in the evolution of audio entertainment,” Mel Karmazin, CEO of SIRIUS Satellite Radio said in a statement.

The deal would also provide listeners a substantially wider variety of programming. Sirius is currently home to shock jock Howard Stern, while XM boasts a number of shows hosted by high-profile entertainers such as Bob Dylan.

“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,” Parsons and Panero said in a joint statement.

Speculation has run rampant on Wall Street about a possible tie-up between XM and Sirius since the beginning of the year.

David Bank, an analyst at RBC Capital Markets, said he was not surprised by the deal since the merger makes a lot of sense, but he warned the tie-up was not a “slam dunk.”

Besides getting shareholder approval, XM and Sirius will also have to get the endorsement of regulators, including the FCC.

Bank added that as a condition of the merger the Department of Justice might impose some sort of price caps so that the combined company can’t raise monthly subscription rates by a big amount, if at all.

Right now, both Sirius and XM have tiered-payment subscription packages, which start at $12.95 per month or $142.45 per year.

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