Move could drive up Echostar's bid

Liberty Media topper John Malone has entered the satellite-radio fray, holding talks with Mel Karmazin about buying debt-laden Sirius XM and merging it with DirecTV.

Most Wall Streeters watching the slow-motion implosion of Sirius are laying long odds against a Malone rescue, however. A few analysts issued reports Thursday saying the move is more likely a ploy to drive up a rival bid from EchoStar, parent of DirecTV competitor Dish Network.

“We do not believe that Liberty initiated the dialogue with Sirius,” wrote Collins Stewart analyst Tom Eagan.

Management of industry leader DirecTV would likely not want the turnaround headaches of being saddled with the radio satcaster.

So why would EchoStar chief Charlie Ergen want to own it? One simple theory outlined by Barclays Capital’s Vijay Jayant: The bid “is an attempt to acquire a business he views as attractive at an appealing valuation.”

And it is certainly appealing. The market cap of Sirius XM is now about $260 million, down from more than $10 billion a year ago.

EchoStar has already been buying up a lot of Sirius’ $3.25 billion in debt and has made unsolicited takeover offers over the past couple of months.

With much of its debt coming due this year, Sirius XM is in dire straits. Its decimated stock closed Thursday at 7¢ a share, and the company has contacted advisers and attorneys to prep a possible bankruptcy filing.

One issue for whomever controls Sirius is its obligations to prominent hosts such as Howard Stern. The company has lavished hundreds of millions of dollars on talent on the theory that an all-star lineup would drive subscriptions.

Reports this week have suggested that Karmazin and his hard-driving lieutenant Scott Greenstein have been making the rounds to try to renegotiate pacts with Stern, Oprah Winfrey, Martha Stewart and several professional sports leagues. So far, the discussions have not seemed to produce tangible results.

One upside to a bankruptcy filing would be the likely increase of leverage in such renegotiations. Of course, it would also be a major detour for Karmazin, who has so resolutely predicted he would prevail in not only merging XM with Sirius but in making the medium as mainstream as cable TV.

Sirius XM now has nearly 20 million subscribers, an estimable number, but the pace of new subscriptions has slowed amid a steep decline in auto sales and a pullback in overall consumer spending.

The three personalities involved in the fate of Sirius are well acquainted with one another, which is why the situation is interesting to media-biz observers. Malone and Ergen have battled for years in the satellite TV trenches. At one point, EchoStar and DirecTV were going to merge, but regulatory hassles helped scuttle the deal.

There is also plenty of bad blood between Ergen and Karmazin. In one 2004 standoff over Dish’s negotiations with Viacom (then run by Karmazin), Dish decided to publicize Karmazin’s home phone number, encouraging viewers to call him and urge a settlement.

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