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Liberty Media deal staves off Sirius bankruptcy

February 18, 2009|Martin Zimmerman

A battle of rival satellite television moguls over an ailing satellite radio company ended Tuesday as Liberty Media Corp. agreed to invest as much as $530 million in Sirius XM Radio Inc., staving off a possible bankruptcy filing by Sirius.

The deal ultimately could give Liberty Media, whose holdings include a 48% stake in El Segundo-based DirecTV Group Inc., a major stake in Sirius, the nation's only satellite radio provider.

It also gives Liberty Media Chairman John Malone an apparent victory over longtime rival Charles Ergen, chief executive of competing satellite TV provider Dish Network Corp. and its sister company, EchoStar Corp.

Sirius said last week that it might have to file for bankruptcy protection if it couldn't refinance its debt, including about $172 million that came due Tuesday. Much of that debt was held by EchoStar, which reportedly made an earlier offer to buy Sirius but was rebuffed.

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.

"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.

Sirius' depressed stock jumped 53% to 16 cents a share on news of the agreement with Liberty. But the stock is down 94% since July.

Shares of Liberty's Liberty Entertainment unit, which trade as a tracking stock, fell $1.18, or 6.2%, to $17.91. EchoStar shares rose 36 cents, or 2.4%, to $15.53.

The investment in Sirius is being made through Liberty Media's Liberty Capital group, which has investments in a range of media and communications companies, including Time Warner Inc. and Sprint Nextel Corp. Closely held Liberty Media said the investment in Sirius wouldn't affect plans to spin off a portion of Liberty Entertainment, which holds the company's stake in DirecTV.

Analysts said Malone's interest in Sirius XM was fueled by a conviction that the company could prosper if relieved of some of the pressure of its debt load, not 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 later, analysts said.

In a statement, Liberty Media Chief Executive Greg Maffei 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."

The transaction between Sirius and Liberty is to be accomplished in two phases.

Liberty Media agreed to provide initially a $280-million senior secured loan to Sirius, $250 million of which was to be funded immediately.

In the second phase, Liberty Media is to lend the radio company $150 million and offer to buy as much as $100 million of outstanding Sirius debt.

When the deal is complete, Liberty Media is to receive 12.5 million shares of preferred stock convertible into a 40% stake in Sirius. Malone and Maffei are expected to get seats on the Sirius board, which currently has 12 members.

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martin.zimmerman @latimes.com

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