Liberty bails out Sirius-XM

Largely as expected John Malone’s (pictured) Liberty Media has bailed out pay-radio broadcaster Sirius-XM. An announcement was made to the NASDAQ exchange ahead of the market opening on Feb 17. What was unexpected was the size of the Liberty investment.

Liberty is putting in a massive $530m, and in effect has put paid to any talks of bankruptcy at least until the end of this year. Liberty coughs up an immediate $280m loan, enough to pay off Charlie Ergen’s Echostar which is owed $171m. A further $250m is available to Sirius on an ‘as needed’ basis, and good to pay other obligations to Ergen as well as ease the pressure on the company’s day to day business.

But there’s a heavy price to pay for Mr Malone’s generosity. In return he gets 12.5m of preferential shares in Sirius-XM which, when converted, will give Liberty a 40% stake in Sirius-XM. Meantime, Sirius-XM pays a healthy 15% interest on the loan, due in 2012.

Malone’s second-in-command Greg Maffei gets a seat on the Sirius-XM board as does John Malone. “We are excited to be investing in Sirius XM. We have been impressed with the company, its operations and management team," said Maffei in a statement. "Sirius-XM's ability to grow subscribers and revenue in a difficult financial and auto market is indicative of how listeners view this as a 'must have' service."

Mel Karmazin, CEO at Sirius-XM, described the deal as “remarkable” considering the state of the world’s capital markets. He might also have added ‘beggars can’t be choosers’, and in avoiding the very real threat of bankruptcy Karmazin stays in control – albeit with Malone now in control of 40% of the business.

Nevertheless, the hard facts are that Sirius-XM’s extremely patient shareholders have seen not a dime flow from the business. The share price has withered to barely 10 cents (although it rocketed 71% to 18 cents on Feb 17) when only a few months ago they were selling at almost $4 a share. The company still has $350m of debt due in May, and a total overdraft (and debt obligation) of some $3.2bn.

On the plus side it has 19m subscribers, and now must prove to investors and the market that it has the ability to turn these accumulated losses into a thriving business. What will be interesting is how Malone and his DirecTV pals leverage their Sirius-XM assets into some sort of extra service for their DTH pay-TV business.