Sirius XM Radio fends off bankruptcy with Liberty Media deal
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Sirius XM Radio staved off a possible bankruptcy filing today when Liberty Media agreed to invest $530 million in the ailing satellite radio company.
Credit: Koka Sexton via Flickr.
The deal ultimately could give Liberty Media Chairman John Malone, whose holdings include a 48% stake in El Segundo-based DirecTV Group, a major stake in Sirius XM, the nation’s only satellite radio provider.
It also gives Malone an apparent victory over longtime rival Charles Ergen, chief executive of competing satellite TV provider Dish Network and its sister company, EchoStar.
Sirius XM said last week that it could file for bankruptcy protection as early as today if it couldn’t refinance its debt, including about $172 million that was coming due today. Much of that debt was held by EchoStar, and Ergen reportedly made an earlier offer to buy Sirius XM but was rebuffed.
‘This agreement enables Sirius XM to continue to develop the opportunities first outlined in the merger of Sirius and XM,’ Mel Karmazin, the radio company’s chief executive, said in a statement.
The deal between Sirius and Liberty Media will be accomplished in two phases. First, ...
... Liberty Media will provide a $280-million senior secured loan to Sirius XM, $250 million of which will be funded immediately. In the second phase, Liberty Media will loan the radio company $150 million and offer to buy up to $100 million of outstanding Sirius XM debt.
When the second phase is completed, Liberty Media will receive 12.5 million shares of preferred stock convertible into a 40% stake in Sirius XM. Malone and Liberty Media Chief Executive Greg Maffei will get seats on the Sirius XM board, which currently has 12 members.
The company, formed last summer by the merger of Sirius Satellite Radio and XM Satellite Radio, has about 19 million subscribers. It has been struggling with a crushing debt load and the sharp drop in U.S. auto sales — the company’s primary source of new subscribers.
The investment in Sirius XM will be made through Liberty Media’s Liberty Capital group, which has investments in a range of media and communications companies, including Time Warner and Sprint Nextel. Closely held Liberty Media said the investment in Sirius won’t affect plans to spin off a portion of its Liberty Entertainment group, which holds the company’s stake in DirecTV.
Analysts said Malone’s interest in Sirius XM was fueled more by a conviction that the company can prosper if relieved of some of the pressure of its debt load than by any immediate prospect of combining services or operations with DirecTV.
“He sees it more as an investment than anything in regard to potential synergies with DirecTV,” said Benjamin Stretch, an analyst with Macquarie Capital USA. Cross-marketing, bundling of services or other forms of cooperation could come in the future, analysts said.
In a statement, Maffei of Liberty Media expressed confidence in Karmazin and his management team and said the company’s “ability to grow subscribers and revenue in a difficult financial and auto market is indicative of how listeners view this as a ‘must-have’ service.”
Sirius XM’s depressed shares jumped sharply today on news of the agreement, climbing 60% to 17 cents in late trading. Shares of Liberty Entertainment’s stock were down 6% to $17.95 and EchoStar was up 3.6% at $15.72.
-- Martin Zimmerman