DirecTV Group Inc., the largest U.S. satellite-television provider, is in talks with Sirius XM Radio Inc. about a possible deal, according to people close to the situation.
An accord may help prevent Sirius XM from seeking bankruptcy protection or agreeing to a deal with satellite company EchoStar Corp. less than a year after Sirius Chief Executive Mel Karmazin completed the merger of the only two U.S. pay-radio providers.
Sirius XM has $3.25 billion in total debt and has until Tuesday to repay $175 million in bonds held by EchoStar.
Both EchoStar and DirecTV, the El Segundo pay television company controlled by John Malone's Liberty Media Corp., could use Sirius XM's satellite capacity to integrate radio and television services, said Fred Moran, an analyst at Stanford Group.
EchoStar has been buying Sirius XM's debt since making an unsuccessful takeover bid in December, said one person with knowledge of the matter.
"All of these companies are satellite-delivered media," Moran said. "If you can cross-market, cross-promote and intertwine services between satellite video and satellite audio, you could strengthen your competitive position."
Patrick Reilly, a spokesman for Sirius XM, and Robert Mercer, a DirecTV spokesman, declined to comment.
Under one scenario, DirecTV could buy out shareholders and repay Sirius XM's debts, said one of the people, who declined to be identified because the talks aren't public.
Another person said that a deal with DirectTV may be hampered because of a possible bankruptcy filing by Sirius. In that case, EchoStar, led by Chief Executive Charles Ergen, would be the favored buyer because of its bond holdings in Sirius, the person said.
Sirius XM, based in New York, has traded for less than $1 since Sept. 10 as investors became concerned that Karmazin, 65, wouldn't be able to manage the debt or meet growth projections. The company has $350 million in bank loans due in May and $400 million in convertible bonds due in December.
In August, Karmazin said he accepted an "ugly" debt deal to complete the merger of Sirius and XM before terrestrial radio rivals could block it. In November, he cut his forecast for 2009 subscriber growth by almost 1 million as collapsing auto sales cut demand for car radios.
Sirius XM shares fell 52% to 5.5 cents. EchoStar declined 60 cents to $15.15 and has dropped 57% in the past year. DirecTV rose 64 cents to $22.94 and has declined 1.5% in the past year.
Sirius XM has been preparing a possible bankruptcy filing, newspapers reported Wednesday, citing unidentified people close to the company.
Roger Altman, chief executive of investment bank Evercore Partners Inc., confirmed Wednesday that his firm was working with Sirius XM. He wouldn't say whether the work involved mergers and acquisitions or restructuring.