Capital Markets

How Liberty Media Got Sirius

Or 40 percent of the satellite broadcaster, anyway. It is investing an aggregate of $530m in a deal engineered by Liberty CEO Greg Maffei, which st...
Roy HarrisFebruary 17, 2009

Liberty Media Corp.’s deal to acquire 40 percent of satellite broadcaster Sirius XM Radio Inc. involves two phases of loans totaling $530 million — the first a $280-million senior secured loan, $250 million of which was immediately funded.

The stake in Sirius it will receive is represented by preferred stock that is convertible into 12.5 million Sirius common shares. And Liberty Media is expected to put chairman John Malone and CEO Greg Maffei on the Sirius XM board under terms of the arrangement announced on Tuesday.

Maffei, a veteran CFO with Microsoft Corp. and later Oracle Corp., said Liberty Media had been impressed with Sirius XM’s operations and management team, along with its “ability to grow subscribers and revenue in a difficult financial and auto market.” Its growth performance, he said, “is indicative of how listeners view this as a ‘must have’ service.”

Maffei has been Liberty Media’s CEO since 2006, when he replaced Malone in the position. After seven years as Microsoft’s CFO, Maffei had been chairman and CEO of 360networks Corp., before joining Oracle and becoming Oracle’s copresident and finance chief.

Before the Liberty Media investment, Sirius had said that it might be forced into a bankruptcy filing if it couldn’t restructure its debt. Headed by Mel Karmazin, the Sirius XM CEO, the broadcaster had been courted by EchoStar Corp., whose CEO, Charles Ergen, earlier had made a hostile bid for Sirius.

Ergen was reported to be seeking control of Sirius as part of a deal involving a large investment and an agreement to a restructuring of about $400 million of Sirius debt. Ergen also is CEO of Dish Network, the satellite broadcaster that formerly was spun off by EchoStar. Ergen previously had been a contender for the operations of satellite broadcaster DirecTV, which is now controlled by Liberty Media.

In addition to DirecTV Group Inc., Liberty Media has interests that include the QVC home-shopping network, IAC/InteractiveCorp., online travel company Expedia, and minority investments in Time Warner Inc. and Sprint Nextel Corp.

Proceeds of the first phase of the loan to Sirius will be used to repay $171.6 million of maturing 2.5 percent convertible notes due Feb. 17, 2009, with the balance being used for general corporate purposes, including working capital and transaction costs. The 15-percent loan will mature in December 2012, and will b3e secured by assets securing Sirius XM’s existing term credit agreement.

The second phase of the loan provides $150 million to XM Satellite Radio, a wholly owned unit of Sirius XM. Further, Liberty Media has agreed to purchase up to $100 million of the loans outstanding under XM Satellite Radio’s existing credit facilities.

“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,” said Sirius chief executive Karmazin.