Sirius XM Radio is said to be seeking an investment from Liberty Media in a last-ditch effort to fend off an unsolicited takeover approach from satellite entrepreneur Charles Ergen.
The talks set the stage for a battle between the leading US satellite-television providers -- Liberty-controlled DirectTV and Ergen's Dish Network -- for control of the country's sole satellite-radio operator.
Liberty, which is controlled by billionaire John Malone, emerged as a potential "white knight" for Sirius after Ergen made an unsolicited offer late last year to take control of the radio operator.
Though the talks between Sirius and Liberty are advanced, a deal remains far from certain. It wasn't clear how much Liberty would be willing to invest in Sirius and whether it would end up with control. Malone is a careful negotiator and is unlikely to cut a deal in haste.
Sirius doesn't have much time.
Ergen, who controls a satellite empire around EchoStar and Dish, quietly began amassing Sirius debt in the fall. He is now using that debt, including about $175 million in bonds that mature on Feb. 17, as leverage to try to force Sirius into a deal. Sirius, which carries a total debt load of about $3.25 billion, is nearly out of cash and will likely be forced into bankruptcy proceedings or a deal with Mr. Ergen if the company can't secure funds to repay its obligations by Tuesday.
Ergen has offered to inject about $500 million into Sirius and restructure the roughly $375 million in short-term debt he holds in return for control of the company. Sirius rejected the offer.
The gamesmanship between Sirius and Ergen has escalated over the past week. Sirius had been trying to convert the $175 million debt tranche that matures Tuesday into more senior debt and equity with the previous holder of the notes, a hedge fund. Before it could secure a deal, however, Ergen swooped in last week and acquired the bonds.
It was a high-risk move because the notes in question are junior to about $600 million in bank loans and other debt Sirius has issued, and will likely be worthless if the company goes bankrupt.
This week, Sirius representatives responded to Ergen's move by spreading word that the company was preparing to file for bankruptcy and had hired bankruptcy and restructuring advisers. Company officials also privately told investors that Sirius has entered a "zone of insolvency" and that a bankruptcy filing would be preferable to cutting a deal with Mr. Ergen, according to people who participated in the discussions.
Sirius shares, which have lost nearly all of their value since late July, fell 52% to six cents in Nasdaq trading. The company's market value is less than $200 million.
Some investors have expressed concern that Sirius might pursue a deal inferior to Ergen's offer just to escape his clutches. Ergen and Sirius Chief Executive Mel Karmazin have a long-running feud. (info fro mThe Wall Street Journal)
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