John Malone’s Liberty Media is trying to get permission from the Federal Communications Commission to use its near majority ownership of Sirius XM Radio to take control of its board of directors. Since a tussle started in March, Sirius has opposed Liberty at the FCC and so far the FCC has rejected Liberty, basically because Liberty had not announced specific steps on its plans to effect the director election. Last week Liberty asked for reconsideration and announced some of those steps.
There is more to this dance than meets the eye. This is not about your normal struggle to control a company. Liberty has enough shares to effectively control Sirius—once the regulators give their blessing. And earlier this year, a standstill agreement—which prohibited Liberty from trying to get more directors or otherwise control Sirius—expired.
Liberty’s move is probably the opening gambit in a process to harvest for Liberty shareholders the massive gain it has in its investment in Sirius. In return for loaning around half a billion dollars to Sirius when it was in dire straits during the global financial crisis, Liberty was given preferred stock convertible into 40% of the common stock of Sirius, as well as minority representation on the Sirius board.
Based on current market prices, Sirius’s current market capitalization will be almost $12 billion when all those convertible securities are converted. If Liberty sold its shares now, that would be a lot of taxes to pay. And simply spinning off Sirius shares to Liberty shareholders would trigger even more taxes—unless Liberty spent billions of dollars buying a lot more Sirius shares first.
Howard Stern, who seems to be in a perpetual fight with his bosses, is at it again.
The production company for the radio personality is suing Sirius XM, claiming the satellite radio company has refused to pay stock awards it owes because of subscriber targets in Stern’s contract. The lawsuit also says Sirius owes money to Stern’s agent under a consulting agreement.
“World-renowned radio personality Howard Stern (“Stern”) put Sirius on the map,” the lawsuit says. “But, with the exception of a stock award that Sirius paid for the initial year of Stem’s contract, Sirius has refused to pay One Twelve [the production company for Stern's show] the additional performance-based stock awards to which One Twelve is entitled.”
CLICK HERE to read Stern’s lawsuit against Sirius XM.
Sirius XM’s Mel Karmazin is probably feeling pretty good today.
The embattled chief executive has just scored a $530 million investment from Liberty Media, which gives Karmazin more cash to run the company, allows him to maintain control and gives him an better chance of keeping his job without the office politics of working for his old rival, Charlie Ergen, at EchoStar.
Ergen had spent months buying up Sirius XM debt and looked ready to pounce on the satellite radio broadcaster last week and make Karmazin his employee–an awkward proposal, considering the toxic competition between Ergen and Karmazin when both worked for Sumner Redstone at Viacom. Even though Ergen had promised Karmazin could keep his job under EchoStar ownership, Karmazin appeared reluctant to take chances.
Instead, he opted for Liberty Media’s John Malone.
Sirius XM, fresh from a 17-month battle to merge, may be facing another deal very soon. It already has two bidders. But why stop there?
If EchoStar wants to take over Sirius XM Satellite Radio, Chief Executive Mel Karmazin may want to thank his lucky stars. As The Wall Street Journal reported today, EchoStar bought part of a $300 million tranche of Sirius debt that was due to mature on Feb. 17. The move could be “the first salvo in [...]
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