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ECommerceTimes.com

Is a Sirius Bidding War in the Offing?

Is a Sirius Bidding War in the Offing?

Sirius XM Radio is teetering on the verge of bankruptcy, with $175 million in debt payments due next week. EchoStar, which owns a substantial portion of the Sirius debt, is rumored to be ready to pounce, hoping to acquire the beleaguered company for pennies on the dollar. However, DirecTV owner Liberty Media also may be getting into the action, which could make things very interesting.

By Jeff Meisner
02/12/09 1:15 PM PT

Struggling Sirius XM Radio stock shot up nearly 30 percent to 7 US cents per share in mid-day trading Thursday on rumors that a bidding war was about to ensue between rival satellite television players EchoStar and Liberty Media.

EchoStar owns the Dish Network and Liberty Media owns a controlling interest in DirecTV.

The news of a potential bidding war came just one day after reports that Sirius, saddled with a mountain of debt, was on the brink of bankruptcy.

Sirius XM faces $175 million in debt payments due on Tuesday, and EchoStar owns a substantial portion of the company's debt.

Sirius is best known for offering subscribers commercial-free music, sports, news and talk radio programming, including Major League Baseball, the National Football League, shock jock Howard Stern and domestic guru Martha Stewart.

Spokespersons for Sirius XM and EchoStar declined to comment. Liberty Media could not be reached for comment.

EchoStar's stock was up 4.42 percent to $15.82 per share in mid-day trading Thursday.

Serious Assets

"Sirius XM is seriously in play," Colin Gillis, managing director of research at TheStreet.com, told the E-Commerce Times. "There are some clear synergies with Sirius, the Dish Network and DirecTV because they're all satellite companies."

Whoever ends up owning Sirius XM is getting an excellent asset, Gillis said, because the acquirer gets both Sirius and XM Radio, which completed a $13 billion merger in July 2008.

Although it's not clear who will end up owning Sirius XM, EchoStar could have an advantage over Liberty Media because it owns so much of Sirius XM's debt.

"That's why the EchoStar play is really clever," Gillis said. "You buy up the debt. The first bit is coming due less than a week from now. [Sirius XM] probably won't be able to pay -- that's the assumption -- and then they would be driven into bankruptcy."

EchoStar could then use its leverage as a major debt holder to negotiate a good deal with Sirius XM's remaining creditors for pennies on the dollar, he said.

"That's the way to acquire a company in certain situations involving a bankruptcy," Gillis noted.

What Happened to Sirius?

Once a high-flying upstart satellite player, Sirius XM has endured a number of setbacks going back to early 2007.

The company is burdened with expensive contracts associated with providing listeners with content from Stern, Stewart and sports properties such as NASCAR.

Those contracts, combined with a deteriorating balance sheet and the year-long U.S. recession, have hit Sirius hard.

Subscribership grew by 17 percent in the quarter ended Sept. 30, 2008, but the rate of subscriber growth has slowed substantially. Sirius netted 344,081 new subscribers during the quarter, down 59 percent compared with the 839,750 it netted during the same period the year before.

"How did this great entity get here?" Gillis asked. "They got chopped off at the knees."

Then there is the company's sizable load of debt, much of which accumulated as Sirius and XM Radio built the expensive satellite infrastructure needed to deliver content to their listeners.

Sirius also suffered setbacks as a consequence of its merger with XM Radio, first announced in February 2007. The merger was expected to save the combined company about $400 million annually.

However, the deal ran into roadblocks almost as soon as it was announced. The National Association of Broadcasters objected to it on the grounds that it would be anticompetitive and would hurt the consumer. The Federal Communications Commission didn't even approve the agreement until just last summer.

"If [Sirius and XM Radio] had pushed forward on their businesses instead of this merger, the businesses would be healthier now," Gillis said. "I don't know what's going to happen now, but it's going to be a tremendous story


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