Communications mogul John Malone sidestepped rival Charlie Ergen and saved Sirius XM Radio from bankruptcy by agreeing Tuesday to lend $530 million to the struggling satellite-radio company.
The deal ends, for now, the latest faceoff between the Douglas County competitors who control the nation’s largest satellite-TV providers — Ergen’s Dish Network and Malone’s majority stake in DirecTV, through Liberty Media.
Analysts said Liberty views Sirius XM as an investment and does not appear likely to combine it with DirecTV, although the transaction could give Liberty a boost in newer media technologies such as delivery of video to hand-held devices through the additional spectra controlled by Sirius XM.
Liberty Media will receive preferred stock in Sirius XM that will be convertible to 40 percent of the company’s common stock.
In addition, Liberty will receive two seats on Sirius XM’s board, which are expected to be filled by Malone and Liberty chief executive Greg Maffei.
“It’s a strategic play and an opportunistic play by Liberty,” said Chris Diceman, a communications analyst with Toronto-based credit-rating agency DBRS.
“Part of what Liberty Media has done from Day One is to be an opportunistic investor in the media space,” he said. “Sirius was on its last legs from an equity perspective, and Malone will jump in and control a significant shareholding.”
Ergen earlier this year reportedly had been purchasing Sirius XM debt in what analysts said was an attempt to gain control of the company. The debt acquisition had followed an unsuccessful takeover attempt by Ergen in December.
The $280 million first phase of Liberty’s loans to Sirius XM will, in part, pay off the bonds held by Ergen, which came due Tuesday.
“Ergen bought the debt fairly cheaply, and now he’s being paid out with a good return on his investment,” Diceman said.
Sirius XM chief executive Mel Karmazin probably preferred a deal with Malone, because bad blood exists between Karmazin and Ergen, said analyst Jimmy Schaeffler of the Carmel Group.
In 2004, when Karmazin headed CBS parent Viacom, a dispute flared between Ergen and Karmazin over terms of a deal for Dish Network to carry Viacom programming.
When Dish subscribers called to complain about the temporary loss of Viacom channels, Dish’s customer-service phone message advised them to complain to Karmazin and listed his home phone number.
Dish parent EchoStar subsequently changed the recording when it said it realized the Karmazin phone number was not a corporate listing.
Steve Raabe: 303-954-1948 or sraabe@denverpost.com
Clashes of the satellite titans
Some key showdowns between Liberty Media’s John Malone and EchoStar’s Charlie Ergen:
February 1997: Rupert Murdoch, right, and News Corp. abandon an agreement with EchoStar to create satellite services for American television viewers after Malone invites Murdoch into a different venture. This prompts Ergen to file a multi billion-dollar lawsuit against News Corp. that is later — and lucratively for Ergen — settled out of court.
October 2001: Murdoch, with financing from Malone and Micro soft’s Bill Gates, left, is thwarted in his attempt to buy DirecTV from Hughes Electronics when an unsolicited offer from Ergen wins the bid. The multibillion-dollar deal is later terminated after mounting opposition from federal regulators.
April 2003: Murdoch finally gains a controlling interest in Hughes and DirecTV with a $6.6 billion deal.
December 2006: News Corp. transfers control of DirecTV and $550 million in cash to Liberty Media as part of a deal to buy back News Corp. stock from Liberty.
June 2007: Malone and Ergen fail in separate attempts to acquire satellite-communications provider Intelsat, which London-based BC Partners wins with a $5.03 billion bid.
February 2009: Liberty Media strikes a $530 million deal with Sirius XM Radio to stave off impending bankruptcy. The deal provides funds to relieve $175 million of debt Sirius owes Ergen, thwarting Ergen’s attempt to take control of Sirius.
Sources: The Associated Press, The New York Times and Denver Post archives
Compiled by Barry Osborne of the Denver Post Research Library
