Entertainment Industry

Category: Sirius XM

Liberty boosts SiriusXM stake above 45%

Karmazin Malone

Having been stymied by the Federal Communications Commission last week in its gambit to take over Sirius XM Radio Inc., Liberty Media revealed its next move on Tuesday — bumping up its stake in the company to 45.2% from 40%. 

Liberty's chief executive, Greg Maffei, told analysts in a conference call that his company had a contract in place to buy 302 million shares of SiriusXM for $650 million at $2.15 a share from undisclosed sellers.

The price represents a discount to SiriusXM's $2.17 closing price on Monday, prior to Liberty's announcement. SiriusXM lost 3 cents to $2.14 Tuesday after Maffei unveiled his move.

The two companies have been locked in a struggle for control since March, when Liberty started the high-stakes corporate chess match with a request to the FCC for control of the operating licenses SiriusXM needed to broadcast its satellite radio service. Liberty argued that its 40% ownership, along with five out of 13 seats on the board, meant it had "de facto" control of SiriusXM. 

SiriusXM's chief executive, Mel Karmazin, strenuously objected, deriding Liberty's attempt as trying to convince regulators that "40 is the new 50." His point was that shareholders needed to have more than 50% of a company to call the shots.

It seems that Liberty's chairman, John Malone, heard the message loud and clear and is moving toward that magic 51% mark.

But why 45.2% as opposed to 51%? Would that change the commissioners' minds at the FCC, should Liberty choose to exercise its option to amend its request to regulators by June 4? 

Here's Maffei's answer to those questions, which were posed to him during the earnings call with analysts:

"We thought it was attractive financially and because we thought it increased some of our options.... As far as de facto control, my layman's understanding would be we have a certain series of rights by contract with SiriusXM. To be able to fully exercise those rights freely, we need to have de facto control approved by the FCC. And as far as changing our application, I think there are host of things, actions we might take including this action we have taken, which will have bearing on our application and we'll weigh those, as we said, over the next 30 days and decide how to amend."

In other words, if 45.2% is enough to persuade the FCC to hand over the licenses, why spend the extra money to get to 51%? 

RELATED:

Sirius snubs Liberty

SiriusXM: Winning with niche playlists

FCC dismisses Liberty request for control over SiriusXM

— Alex Pham 

Photo: SiriusXM Chief Executive Mel Karmazin, left; Liberty Media Chairman John Malone, right. Credits: SiriusXM and Liberty Media.

 

 

 

 

 

FCC dismisses Liberty Media request for control of SiriusXM

Karmazin Malone

Score one for Mel Karmazin, the chief executive of Sirius XM Radio Inc. 

The U.S. Federal Communications Commission on Friday dismissed Liberty Media Corp.'s request for the operating licenses that would have given the company control over SiriusXM.

Liberty's request, made in March, argued that because it had 40% of SiriusXM's shares, along with five out of 13 seats on the company's board, Liberty effectively controlled SiriusXM, a New York-based satellite radio service with 22.3 million paying subscribers. Sirius strenuously protested with the FCC, and Karmazin in a recent call with investors mocked Liberty's argument as "40 is the new 50."

The FCC, in a letter to Liberty's lawyers, rejected the application. Here's the relevant rationale: 

We find Liberty Media’s applications to be unacceptable for filing because they are defective with respect to “execution” and “other matters of a formal character.” Specifically, Liberty Media was unable to obtain the passwords, signatures, and other necessary information from Sirius to properly file an electronic transfer of control application. Furthermore, we conclude that a waiver of basic filing requirements is not warranted, as the facts disclosed in the referenced applications are not sufficient to establish that Liberty Media intends to take actions, such as conversion of preferred to common stock and installation of a board majority, that would constitute exercise of de facto or de jure control.

Translation: In order to get its hands on SiriusXM's operating licenses, Liberty Media would have to get the passwords and approval of executives and board members who run SiriusXM. Eddy Hartenstein, publisher of the Los Angeles Times, is a non-executive chairman of the SiriusXM board.

Calls to SiriusXM and Liberty Media were not immediately returned.

John Malone, the chairman of Liberty Media, isn't one to give up easily, however. The FCC option was simply the least expensive path to gaining control of SiriusXM.

Liberty now has other, albeit costlier, options including accumulating enough shares of SiriusXM to boost its stake above 50% and staging a boardroom coup by calling a meeting of Sirius stockholders and putting the matter to a vote. But doing so could trigger a big tax bill for Liberty Media if the transaction is deemed to be an acquisition.

Liberty's executives, including Chief Executive Greg Maffei, have suggested to Wall Street investors that it could also execute a complex, but tax-free, Reverse Morris Trust, which would require Liberty to increase its share of SiriusXM above 50%.

Your move, Mr. Malone.

RELATED:

SiriusXM snubs Liberty, again

SiriusXM winning with niche playlists

SiriusXM lashes out against Liberty Media's takeover attempt

-- Alex Pham

Photos: SiriusXM Chief Executive Mel Karmazin, left, and Liberty Media Chairman John Malone appear to be duking it out over control of SiriusXM. Credits: Sirius XM Radio Inc. and Liberty Media Corp. 

 

 

 

SiriusXM snubs Liberty Media's takeover attempt -- again

Karmazin Malone

Sirius XM Radio Inc. delivered a counterpunch Friday to Liberty Media's hostile takeover attempt in a brief it filed with federal regulators.

Liberty Media in March threw the first punch by asking the U.S. Federal Communications Commission to give it control over SiriusXM's operating licenses. Liberty argued that its 40% stake in SiriusXM gave it "de facto" control over the satellite radio company. It refined its argument further last Thursday, arguing that its stake, and control over five of the 13 seats on the Sirius board is "more than sufficient to determine the outcome of matters submitted to a vote of shareholders."

SiriusXM took umbrage over the characterization. In a brief filed with the FCC, SiriusXM scoffed at Liberty's argument that "40 is the new 50."

"There is no support for the remarkable proposition that a ... 40% minority interest, standing alone, is sufficient to bestow control of a public company," wrote SiriusXM's attorneys, who urged the agency's commissioners to dismiss Liberty's request.

Calls to the FCC were not returned, and Liberty Media's spokeswoman did not respond to requests for comment.

Eddy Hartenstein, publisher of the Los Angeles Times, is a non-executive chairman of the SiriusXM board.

The tussle for control over SiriusXM, which topped $3 billion in revenue in 2011, stems from a Faustian bargain its chief executive, Mel Karmazin, made in 2009 to accept a $530-million loan from Liberty Media's chairman, John Malone. The money, which has since been repaid, saved SiriusXM from having to file for bankruptcy protection.

The deal also gave Liberty Media a 40% stake in Sirius and five seats on the company's board. But it handcuffed Malone from making further moves to take over SiriusXM — at least until this March. When those restrictions expired, Liberty Media made its first move by petitioning the FCC for a transfer of SiriusXM's operating licenses.

For now, that's the least expensive path to gaining control of SiriusXM. But Liberty has other options, which it outlined in its petition last week to the FCC. Those include accumulating enough shares of SiriusXM to boost its stake above 50% and staging a boardroom coup by calling "a meeting of Sirius stockholders" and putting the matter to a vote. But doing so could trigger a big tax bill for Liberty Media if the transaction is deemed to be an acquisition.

Liberty's executives, including Greg Maffei, have suggested to Wall Street investors that it could also execute a complex, but tax-free Reverse Morris Trust, which would require Liberty to increase its share of SiriusXM above 50% or, ideally, above 80% to take full advantage of the tax breaks, according to Citigroup analysts.

RELATED:

SiriusXM winning with niche playlists

SiriusXM lashes out against Liberty Media

SiriusXM stock falls after disappointing subscriber forecast

— Alex Pham

Photo: SiriusXM Chief Executive Mel Karmazin, left. Liberty Media Chairman John Malone, right. Credits: SiriusXM and Liberty Media.

SiriusXM fights Liberty Media takeover move

Mel Karmazin John Malone

Did Sirius XM Radio Inc. make a Faustian bargain when it decided to accept $530 million from Liberty Media Corp. to stave off bankruptcy in early 2009? 

The New York-based satellite radio company filed a petition late Friday afternoon with the Federal Communications Commission, urging that the agency deny a request by Liberty Media Corp. that sought to transfer several of SiriusXM's operating licenses to Liberty's control. Liberty owns 40% of SiriusXM and occupies five of its 13 board seats.

Liberty's request, filed March 20, include SiriusXM's earth station licenses and its terrestrial repeater license. The FCC requires SiriusXM to have all three licenses to operate. 

But SiriusXM fought back, arguing in a 24-page petition that Liberty failed to get proper signatures from the company’s board for its transfer request.

“This is the equivalent of trying to cash an unsigned check and explaining the lack of a signature by saying nothing more than the account holder refused to sign it,” SiriusXM's attorneys wrote.  

Liberty Media's intent, and the intent of Chairman John Malone, is unclear. The company did not state a reason for seeking control of those licenses and messages to Liberty Media's spokeswoman were not immediately returned.

At issue is whether Liberty's 40% stake in SiriusXM allows Malone to assume ownership of the satellite radio company, which last year earned a $427-million profit on more than $3 billion in revenue. 

What's clear is that SiriusXM's last-minute arrangement with Liberty averted financial disaster, allowing the New York satellite radio company to make a $172-million payment on its high-interest loans just days before it was due in February 2009. The transaction also gave Liberty Media five of 13 seats on the company's board.

The deal also barred Liberty Media from trying to take over SiriusXM by acquiring 39.9% or more of SiriusXM's stock. That provision expired March 6.

"The expiration of the Investment Agreement Provisions does no more than remove certain barriers to Liberty Media's ability to take additional steps to acquire control of SiriusXM," SiriusXM's lawyers argued. "The SiriusXM Board controls the company, and Liberty Media's current minority representation on the board does not give it the ability to control SiriusXM." 

(Eddy W. Hartenstein, publisher and chief executive of the Los Angeles Times and CEO of its parent, Tribune Co., is also a SiriusXM board member.)

Malone has a history of not-so-friendly takeovers. In 2004, he locked horns with Rupert Murdoch over control of News Corp. The lengthy battle ended in 2006 when Malone agreed to give up Liberty's 16.3% stake in News Corp. in exchange for 38.5% share in DirecTV, along with half a billion dollars in cash and three regional sports networks.

In the current clash of the media titans, it's now Malone's turn to make a move.

RELATED: 

Liberty Media deal staves of Sirius bankruptcy

By securing Howard Stern, SiriusXM avoids static

SiriusXM stock falls after disappointing subscriber report

-- Alex Pham

Photos: SiriusXM Chief Executive Mel Karmazin, left, and Liberty Media Chairman John Malone appear to be duking it out over control of SiriusXM. Credit: Sirius XM Radio Inc. and Liberty Media Corp.  

Sirius XM third-quarter subscriber growth rattles investors

SiriusXM's Howard Stern

Sirius XM Radio Inc.'s subscriber growth received a cool reception on Wall Street as investors worried that the satellite radio company might lose customers early next year when its 12% price hike is set to hit.

In announcing its third-quarter earnings Tuesday, the New York company reported 21.3 million subscribers as of Sept. 30. That's up 334,000 from July — mostly from consumers who bought new cars and began subscribing to the service — but below analysts expectations of as many as 400,000 new subscribers.

Combined with the Jan. 1 price increase, investors fretted that Sirius could end up losing subscribers, pushing Sirius' shares down as much as 8% in early-morning trading.

Sirius Chief Executive Mel Karmazin in August said the company would raise its prices after federal regulators lifted a three-year ban on price increases that it imposed as a condition of allowing Sirius to merge with XM in 2008. Subsequently, the company announced that starting next year, the base price of its radio service would go to $14.49 a month from $12.95.

In a call with Wall Street analysts Tuesday, Karmazin stressed that the increase, the first for Sirius customers since 2002 and for XM subscribers since 2006, would amount to just 5 cents a day and would help the company grow revenue, increase cash flow and invest in additional programming.

"Never before in the company’s first decade of operations had Sirius changed its core price of $12.95 per month," Karmazin said, "despite adding a tremendous amount of premium content that didn’t exist when the company launched service."

Analysts on the call with Karmazin drilled him about how the hike would affect the company's "churn rate," the number of people who drop the service.

Karmazin defended the forthcoming price hike: "The price increase is not in any way, shape or form egregious. It’s not something that we’re doing regularly. And we don’t think that it should impact our growth next year."

In announcing its financial results, Sirius reported $104 million in net income, or 2 cents a share, up 54% from a year earlier for the third quarter ended Sept. 30. Revenue of $763 million was up 6% from last year.

The results beat analysts' financial forecasts of 1 cent a share.

RELATED: 

Sirius XM expects price hike in 2012

Triton capitalizes on radio's sea change

Slacker replaces CBS in deal to power AOL Radio

— Alex Pham

Twitter/ @AlexPham 

Photo: Sirius XM's popular shock jock Howard Stern. Credit: Sirius XM.

Sirius XM CEO Mel Karmazin is bullish on 2012

Sirius XM Radio Inc. Chief Executive Mel Karmazin expects significant revenue growth in 2012 after the satellite radio broadcaster raises its subscription fees for the first time in about a decade.

As part of the Federal Communications Commission's conditions in approving the merger between Sirius and XM Radio in 2008, the company was prohibited from raising its subscription fees for a minimum period of three years.

Starting in January of next year, the price tag for Sirius Select, the most popular package the company offers to its more than 20 million subscribers, will go from $12.95 a month to $14.49, an increase of almost 12%.

Stressing that Sirius XM has not had a price increase since it launched in 2002, Karmazin said at the Bank of America Merrill Lynch Media conference in Beverly Hills that on a daily basis the higher fees come down to about five cents a day.

Karmazin said the company expects to hit $3 billion in revenue in 2011 and $3.3 billion in 2012. He expects the company's free cash flow should jump from $400 million to $700 million and its earnings before interest, taxes, depreciation and amortization to go from $715 million to $860 million.

Deals may also be part of Sirius XM's future. Noting that the company anticipates having $1 billion in cash by next year, Karmazin said, "I'd love to do an acquisition." He did not elaborate on what sort of company would hold appeal for the satellite radio broadcaster and he warned that the money "isn't burning a hole in our pocket."

-- Joe Flint

 

Sirius XM to hike subscription fees in 2012

Sirius

Sirius XM Radio Inc. said it expects to raise its prices next year, now that a federal mandate to freeze subscriber fees has been lifted.

"We continue to believe it would be appropriate for us to increase our pricing to be able to continue investing in and delivering the best audio content in the world," said Sirius XM Chief Executive Mel Karmazin during a conference call with analysts to discuss the New York company's second-quarter earnings.

Karmazin did not say how much the increases will be, noting that the company has not changed its monthly base fee of $12.95 since the merger of Sirius and XM in 2008. As a condition of approving the merger, regulators at the Federal Communications Commission barred the combined company from raising its prices. The FCC lifted that restriction Thursday.

David Frear, Sirius XM's chief financial officer, acknowledged that higher prices could decrease the service's number of paying subscribers, which surpassed 21 million in the quarter ended June 30.

"Generally, when you raise prices that you tend to dampen demand," Frear said. "But ... we think that price increases make a lot of sense, given the programming we're delivering and given how long we've left the price unchanged. It just makes a lot of sense to increase it in the future."

The announcement came as Sirius XM reported an 11-fold increase in second-quarter net income to $173.3 million on $744.4 million in revenue. It had earned $15.3 million a year earlier on $699.8 million in sales. It also raised the number of net new paying subscribers in 2011 to 1.6 million, up from its previous forecast of 1.4 million, thanks to the company's push into used cars and other efforts to recruit customers.

Its shares, which closed at $2.11 Monday, spiked up briefly to $2.21 after the morning earnings release, before closing at $2.07, down 4 cents.

ALSO:

Redbox presses play on video game rentals across its kiosks

No cable? You'll have to wait eight days to see Fox shows on Hulu

Amazon.com adds Universal Pictures movies, takes aim at Netflix

-- Alex Pham

Twitter/ @AlexPham

Photo: Sirius XM Chief Executive Mel Karmazin. Credit: Evan Agostini / Associated Press.

With Stern signed and more than 20 million subscribes, Sirius XM CEO Karmazin is on a roll

After securing Howard Stern's services for another five years and getting satellite radio broadcaster Sirius XM Radio past the 20-million subscriber mark, Chief Executive Mel Karmazin threw a party for his company and subscribers Monday night, hiring Paul McCartney for a private show at New York City's Apollo Theater.

But Karmazin, who's not exactly known for being shy, said in an interview that he was looking to stay behind the scenes instead of trying to share the stage with the super star.

KARMAZIN "Meeting McCartney is not part of my plan, but I have been briefed that I might have an opportunity," Karmazin quipped. Asked if he would be excited by that prospect, Karmazin said, "I run out of words after I say, `Hi, how are you doing?' "

Karmazin doesn't run out of words when it comes to the prospects of Sirius XM. Having weathered a liquidity crisis that almost led to a bankruptcy filing and now on more solid financial ground, Karmazin and Sirius XM want to broaden their reach. In an interview, Karmazin detailed plans to add new channels and programming, including a push to go after the Latino audience.

Sirius XM also wants to use its access to your dashboard to provide more than music. Among the new offerings is a service that warns you when you are approaching a traffic camera. Karmazin says it's strictly for safety and not for people to know when they can run lights or speed.

While Sirius XM's stock has been on the rise, the company has challenges. Internet radio sites such as Pandora and Slacker are growing in popularity and commercial radio still gets about 80% of the revenue pie.

For more on Sirius XM's plans, please see our story in Tuesday's Los Angeles Times.

-- Joe Flint

Photo: Mel Karmazin. Credit: Jonathan Fickies/Bloomberg.

Howard Stern staying put at Sirius XM

Howard Stern Howard Stern, the king of all media, will continue his reign with Sirius XM.

Ending speculation that he was going to take his show to the next frontier -- whatever that might be -- radio personality Howard Stern said on his morning show Thursday that he had signed a new deal that will keep him with satellite radio broadcaster Sirius XM for five more years.

Stern, who turns 57 next month, did not reveal details of the new pact but word that he was staying put was enough for investors to drive Sirius XM stock up about 20% in early-morning trading.

Stern joined Sirius XM in 2006 in a five-year deal valued at $100 million annually. That price tag was for the show, meaning that it also covered costs of Stern's morning program and salaries for his team. Still, Stern himself was likely taking home over $40 million a year. Over time, Stern has decreased his workload a little. He now does his show four days a week, and some analysts suspect that, down the road, he may cut back to three days under this new deal. 

With almost 20 million subscribers, Sirius XM has grown tremendously since Stern made the jump from FM radio. At that point, the company had about 600,000 subscribers. Of course, much of that growth came from the merger between Sirius and XM. Still, Stern has a rabid following and probably north of 1 million faithful listeners.

The challenge for Sirius XM was keeping Stern without breaking the bank. The company, which was teetering on the verge of bankruptcy just a few years ago until Liberty Media made a huge investment in it, has wanted to rein in some of its programming costs. At the same time, Stern provides a huge promotional platform for the service and signing him was groundbreaking for the company, leading to its recruiment of  other big talent.

There was lots of talk about Stern going elsewhere, but it would have been tough for him to get the kind of coin Sirius was going to pay him even if the company did pay him less (in return for a lighter schedule). Although he has the brand to launch his own Internet radio operation, it would have been costly and  faced with technological hurdles for Stern in terms of being able to reach his core audience of morning commuters.

A return to broadcast radio also was unlikely. Among the reasons Stern left FM was the Federal Communications Commission's scrutiny and fines. On Sirius XM, he gets to say what he wants.

--  Joe Flint

Related post: Howard Stern and Derek Jeter have a lot in common.

Photo: Howard Stern on Dec. 1, 2010, in New York. Credit:  Associated Press

Lots of similarities between Yankees' situation with Derek Jeter and Sirius XM's talks with Howard Stern

STERN

If Derek Jeter ever went on Howard Stern's satellite radio show, many of the questions would no doubt be about the bevy of beautiful women the Yankees shortstop has dated over the years.

While that would fascinate the bulk of Stern's male audience, the radio personality himself might benefit more by talking with Jeter about his recent renegotiations with the Yankees. There are a lot of similarities between what the Yankee shortstop just went through and what the self-proclaimed king of all media is dealing with right now.

Both Jeter and Stern are New York institutions with national fan bases. Both are considered tops at their position and each has made clutch plays for their teams for years. And lastly, both are arguably approaching the twilight of their incredible careers.

Jeter just finished negotiating a new deal that should keep him in pinstripes until he hangs up his glove in a few years. Stern, who turns 57 next month, is coming to the end of his contract and Sirius XM would like to hold onto him.

The question, though, is at what cost.

The Yankees decided to play hardball with Jeter and talks got heated at times. Perhaps knowing Jeter wasn't really interested in jumping to another team so late in his career, the Yankees negotiated in public and made clear that they felt Jeter's age and disappointing 2010 season meant he should be prepared to take a pay cut.

It's not that the Yankees didn't have a point. After all, prior to this current deal Jeter had made over $200 million with the team. It's not like his next deal was supposed to be some make-good for previous slights. The Yankees saw it more as a reality check. To borrow from Michael Corleone, "It's not personal ... it's strictly business."

JETER Still, Jeter felt disrespected and some fans got irked, because even though they know their idol's best days are behind him, he still puts people in the seats and sells jerseys. Jeter is an icon for the franchise. He has avoided scandals and no one ever questions his work ethic.

Jeter ended up signing a deal that will pay him less (his annual salary dropped from almost $19 million to $17 million) than he was making, but probably more than any other team would have given the aging player. 

Stern was paid handsomely for making the jump from broadcast radio to satellite. His deal is valued at $100 million annually. That's a big figure, but keep in mind that it's for the cost of the show. In other words, his sidekicks and crew get paid out of that as well. Even after that, though, Stern is still being compensated tens of millions a year.

Sirius XM has indicated that it wants to rein in some of its programming costs, although contrary to some reports, it has not said Stern would necessarily have to take a pay cut. It's only natural that Sirius XM wants to save some money. Its stock is trading at under $2 a share, and after merging with XM it has removed one of its biggest competitors. 

"At the time of the merger, we were in many long-term contracts," said the company's chief financial officer, David Frear, at the UBS Global Media and Communications Conference earlier this week. "As they come up for renewal, we'll have the opportunity to get more favorable economic terms there." 

Karmazin When Stern joined Sirius in 2006, it was groundbreaking, sending a signal that satellite radio was for real. Other stars have followed, including Rosie O'Donnell, Dr. Laura Schlessinger and Oprah Winfrey. It also has a slew of specialty music and sports channels. The service has grown from 600,000 subscribers before Stern joined to almost 20 million now.

Though Stern may not be as crucial to Sirius XM as he once was, like Jeter he is still a vital cog in the machine. Without him, Sirius XM loses not only his followers, but all the free publicity he generates for the company. Is he still worth such a huge paycheck? That's up to the two of them to decide. Stern is brassy on the air, but he is also pretty savvy behind the scenes, and he has a sense of loyalty for Sirius XM boss Mel Karmazin. The two have worked together for decades.

Stern does have some options. A return to broadcast radio is unlikely given that he's probably gotten used to swearing whenever he wants. But Stern has a big-enough following to give going truly solo serious consideration. Stern could launch his own subscription radio show on the Internet and would easily find backers.

That scenario may seem intriguing, but it comes with lots of risks. For starters, much of Stern's audience listens to him in the car on their way to work. While it's not impossible to get streaming Internet content in the car, it's also not as easy as pushing a button. There would be heavy marketing expenses for any new venture. There is also no guarantee that all of Stern's fans would follow him. A chunk went to Sirius, but a lot of the rest just found someone else to listen to on broadcast radio.

There has been speculation about Stern doing some sort of deal with Apple and its iTunes service. But  Apple does not usually pay directly to talent. Stern could sell shows on iTunes and keep a big chunk of the money, but again anything that takes away the live element to his show, or is on a platform that not all his listeners can enjoy together, is a big gamble. It's also not clear that he could make any more money from either approach than what he's making now.

Like Jeter, Stern is probably worth the most to his current employer. If he's offered a new deal for less money, perhaps his producer Gary "Baba Booey" Dell'Abate will take one for the team.

-- Joe Flint

Related post: Gary Dell'Abate talks about life as Baba Booey.

Photos: Top: Howard Stern. Credit: Getty Images. Right: Derek Jeter. Credit: Marcus Donner / Reuters. Bottom left: Mel Karmazin. Credit: Jonathan Fickies / Bloomberg.

 

Advertisement
Connect

Recommended on Facebook


In Case You Missed It...


Photos: L.A.’s busiest filming sites

Video





Categories

Companies


Archives