Eric Rhoads' Blog
Sirius XM, Liberty Reach A Deal
NEW YORK -- February 16, 2009: Sirius XM Radio has averted both a bankruptcy filing and a bid for control by EchoStar, coming to an agreement with Liberty Media that will give Liberty a significant stake in the satcaster in return for an aggregate $530 million in loans.
The first phase includes a $280 million secured loan from Liberty to Sirius XM, $250 million of which will be funded today. That will pay $171.6 million in notes due today, with the rest going to working capital, transaction costs, and other general corporate purposes. The second phase of the agreement includes an additional $140 million loan to the XM Satelite Radio subsidiary, and Liberty has also agreed to buy up to $100 million in XM's outstanding debt.
When the second phase is complete, Sirius XM will issue Liberty 12.5 million shares of preferred stock, convertible into 40 percent of the common stock of Sirius XM. Liberty will also receive seats on the board of directors, with Chairman John Malone and President/CEO Greg Maffei expected to join the board.
"We are pleased to have come to this agreement with Liberty Media," said Sirius XM CEO Mel Karmazin, "particularly in light of today's challenging credit markets. Liberty's investment is an important validation of what Sirius XM has already achieved and a vote of confidence in what we will achieve. This agreement enables Sirius XM to continue to develop the opportunities first outlined in the merger of Sirius and XM. By strengthening our capital structure and enhancing our financial flexibility, this investment allows us to continue providing the great content and innovative programming our subscribers know and love."
Maffei said, "We are excited to be investing in Sirius XM. We have been impressed with the company, its operations, and management team. Sirius XM'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."
Sirius XM has spent the last several days in negotiations with Liberty, which owns a majority stake in DirecTV, and with EchoStar CEO Charles Ergen, who has been buying up Sirius XM's debt for some time in what the Wall Street Journal on Monday called a "stealth attack" on the company. Ergen holds the debt that comes due today.
Ergen had been seeking outright control of Sirius XM in return for $500 million and the restructuring of $400 million in debt, the Wall Street Journal reported Monday, while another investor group had threatened to try to have Karmazin and some of the company's senior management ousted in the event of a bankruptcy filing. The deal with Liberty staves off bankruptcy and keeps control of Sirius XM in Karmazin's hands.
Sirius XM stock surged on news of the deal, rising more than 60 percent, to 17 cents, in midday trading.
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