Liberty Takes 40% Stake In Sirius XM

sirius/xm radioSirius XM Radio got a $530 million infusion from Liberty Media Corp., the owner of DirecTV, a leading satellite TV broadcaster, the companies announced Tuesday.

This allowed Sirius-XM to make a $171.6 million payment scheduled for Tuesday, and apparently frustrated a takeover bid by Charles Ergen, boss of DirecTV competitor EchoStar. The move comes as a group of creditors said they would seek the removal of Sirius XM CEO Mel Karmazin if he did not make a deal with one of the two companies.

The Liberty Media investment comes at a critical time for the financially beleaguered satellite radio broadcaster, which carries a total of over $3 billion in debt. The company said recently that it would not be able to make scheduled debt payments on its own. It looked especially vulnerable to a takeover bid by Ergen, who in recent weeks bought hundreds of millions of dollars worth of Sirius-XM debt, including the loans coming due on Tuesday.



To head off this threat, Karmazin hinted last week that he was ready to file for Chapter 11 bankruptcy protection, which would limit the leverage Ergen exercised with his debt.

On previous occasions, Karmazin had met with Ergen to discuss the possibility of a takeover, but the two men reportedly don't get along and were unable to agree to terms. Karmazin may prefer that Sirius-XM come under the control of John Malone, the boss of Liberty Media, which is also said to be interested in acquiring the satellite radio broadcaster.

However, by extending two loans and offering to buy $100 million in outstanding debt, Malone may simply be seeking to impede Ergen's takeover plans, without intending to step in himself. Per the terms of the deal, Liberty gets 12.5 million shares of preferred stock equivalent to 40% of the company's regular shares--11% shy of a controlling stake. Of course, more deals could be done in the future that will give Liberty Media a controlling stake.

Over the long weekend, The Wall Street Journal reported that a group of creditors were preparing a legal filing to remove Karmazin if he filed for bankruptcy protection rather than make a funding deal with an outside investor--either Liberty or EchoStar.

In an official statement, lawyers hired by the creditors said the creditors "will act quickly and definitively if they perceive that management is acting in their own interest and not in the best interest of the estate."

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