updated 09:50 am EST, Tue February 17, 2009
Liberty Stake in Sirius XM
Sirius XM on Tuesday morning said it has agreed to give an equity stake to Liberty Media in a deal worth $530 million. Best known as the owner of the DirecTV satellite service, Liberty is offering a $280 million emergency loan to cover both an immediately due $172 million debt for Sirius XM and to cover related financial costs. An extra $150 million also goes specifically to the XM half of the satellite radio provider, while Liberty is further volunteering to pay off about $100 million of Sirius XM's existing loans.
In return, Liberty will receive enough shares in Sirius XM to give it about 40 percent control of the provider's stock. The move lets Liberty have significant input into its partner's direction without a takeover and effectively creates one of the first unified satellite groups by joining satellite radio and TV under similar interests.
Both Liberty and Sirius XM portray the deal as a validation of satellite radio as a format, with Sirius XM chief Mel Karmazin calling it a "vote of confidence." His Liberty counterpart Greg Maffei justifies the deal by noting that Sirius XM's ability to improve its business in spite of a slumping car market shows the value of the investment.
Nonetheless, Sirius XM's move is known to be prompted by threats of bankruptcy that have also seen the company take a $300 million loan buyout from EchoStar CEO Charlie Ergen and delay one loan until 2011. Sirius XM has struggled to approach profitability both before and after their merger last year, whose long delay itself is also suspected of creating problems by preventing the two from slimming their operations earlier.