SiriusXM snubs Liberty Media’s takeover attempt -- again

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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.

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— Alex Pham