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8K Watch: The Fine Print On The Sirius-Liberty Deal

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imageThe 8K on Sirius XM (NSDQ: SIRI) released this morning in conjunction with the announcement of Liberty Media’s investment offers some additional nuggets on the deal:

— The first major principal payment on the debt issued to Sirius today is due Jan. 1, 2012, which means the company has given itself three years of breathing room before it has to begin repaying the debt beyond the regular interest payments.

— The $280 million worth of loans issued today are secured by a lien on Sirius assets that include valuable properties like satellites, intellectual property, and subscription/programming contracts. So Liberty should feel fairly confident that the loan will be repaid.

— Liberty agrees it cannot own equity in Sirius in excess of 49.9 percent, which means Sirius CEO Mel Karmazin has a guarantee that Malone/Liberty will never be able to control Sirius.

— If Liberty opts to trade more than half of its preferred stock for common stock, Sirius must then get approval from Liberty if it wants to raise capital or sell the company. So, even though Malone doesn’t get operating control of Sirius, he would have a say in major corporate decisions if he converts more than half of the preferred stock issued to him.

Pictured: Sirius CEO Mel Karmazin

2 Responses to “8K Watch: The Fine Print On The Sirius-Liberty Deal”

  1. midas360

    I think a different scenario is brewing. Read my research/opinion below and see what you think.

    1. On December 17th, 2008 – "Liberty Media (NasdaqGS: LINTA – News) CEO Greg Maffei said a proposed split-off of DirecTV and other assets should be completed by May, pending regulatory approval in a discussion with Deutsche Bank's Doug Mitchelson."

    2. Liberty Media invests over $530 million into Sirius XM and takes control of 40% of the company. The CEO is quoted as saying "In an interview with Fortune, Liberty Media CEO Greg Maffei makes it clear that Liberty's investment in Sirius XM is more opportunistic than strategic.

    3. Last week – "AT&T Inc. proposed to approve an amendment to the Restated Certificate of Incorporation to increase the number of authorized shares of common stock, in the Annual Meeting of Stockholders to be held on April 24, 2009."

    As you probably know, AT&T has chosen DirectTV as its sole partner for satellite televsion. It is bundling DirectTV for those customers where U-Verse is not available. It has been mentioned several times in the past that AT&T might be interested in buying DirectTV.


    It is my opinion that AT&T will get the authorized number of shares approved and offer an all stock deal to buy DirectTV. What does this mean for Sirius XM shareholders? AT&T, the largest telecommunication provider, could own 40% of Sirius XM if they do a merger.

    Remember what Liberty Media's CEO said "it's more opportunistic than strategic." If you read the articles, you will also notice that Sirius XM has some compelling spectrum.

    AT&T's CEO has said in the past that wireless is the future and if you're not in wireless, you won't survive.

  2. digital bear

    Sounds like Karmazin took sage advice from Barry Diller on how to out fox Malone. Why would Malone be willing to keep his holdings below 49%?

    It seems that Malone is banking that the economy doesn't recover soon enough for Sirius to improve their business, miss repayment and fall into yet another predator-prey scenario…