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— Dealwatch —
 March 6: Liberty Media Corp. announced the completion of the second step in a February agreement to keep Sirius XM Radio Inc. from defaulting on $172 million in convertible notes due Feb. 17. - Richard MorganIndeed, it's part of a trend. March 5: Slim, Icahn and Malone lead media debt feast: Investors are turning to acquiring secured debt in financially starved media companies to establish a foothold. - Gerald Magpily Feb 20: Distressed deals: Here come the strategics: In the past, troubled targets have attracted restructuring specialists but few corporate dealmakers. That's likely to change in the current downturn. - Kenneth Klee and Suzanne Stevens
Sirius XM Radio Inc. won't come crashing to Earth just yet. The
satellite broadcaster was saved in the nick of time by $530 million in
loans from John Malone's Liberty Media Corp. The investment, which
gives Malone an equity stake in the company, allows the debt-burdened
company to stave off a bankruptcy filing, pay convertible bonds due Tuesday and avoid a takeover by EchoStar Corp. - George White
EchoStar was indeed trying to gain control of the troubled company, Corporate Dealmaker's Kenneth Klee wrote Feb. 11, citing The Wall Street Journal. "According to press reports," he noted "Sirius CEO Mel Karmazin may face a choice between accepting a capital infusion from EchoStar -- and giving EchoStar CEO Charles Ergen control of the company -- or bankruptcy. Barron's says existing Sirius shareholders may be left with little or nothing." REWIND Back in November, the troubles plaguing the U.S. auto industry were also a problem for Sirius XM, The Deal's Gerald Magpily explained Nov. 19. Sluggish sales have hurt. But "a bankruptcy of one of the Big Three would have an even more detrimental impact. Sirius relies on Ford Motor Co. and Chrysler LLC to boost its subscriber rates, offering free trials of the satellite radio service to try to convert new car owners into new paying subscribers." This, on top of serious integration challenges the company was staring down about a month into its merger, Klee wrote Sept. 4, including being short of breakeven, technical incompatibilities and an "ugly" debt structure, to quote Karmazin. The Deal's Richard Morgan noted days later that Karmazin needed new-car buyers to sign up for satellite radio in droves, but given the economy, that's a tall order. Still, Karmazin told investors Oct. 14 the company foresaw a swing from negative $400 million Ebitda in 2008 to $300 million in 2009, The Deal's Chris Nolter wrote. As expected, the Federal Communications Commission finally approved the $13 billion merger between XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. on July 25, 2008. The deal closed July 29 after both companies saw their shares drop July 28 likely, the Hollywood Reporter speculated, "Wall Street's reaction to the hoops through which they are jumping to get their finances in order," namely debt refinancing. The 3-2 party-line FCC vote came a day after the two satellite radio companies agreed to pay a combined $19.7 million to the U.S. Treasury for a variety of violations. The review extended more than 400 days. Earlier in July, FCC Chairman Kevin Martin seemed irked about the hold up and his fellow commissioners were looking for certain concessions, asked that they be brought forward, The Deal's Ron Orol noted July 11. Martin said June 15 he would back the deal after the companies agreed to certain concessions the week before, as the Washington Post noted. It looked like Republican Commissioner Deborah Tate could join with the two Democratic Commissioners Jonathan Adelstein and Michael Copps to block the deal, which needs a 3-2 vote to pass. Ultimately, Tate backed it following the sum paid to Treasury. Copps told The Deal July 11: "We're still looking at it." Meanwhile, the political maneuvering around the deal went on. Earlier in June, it seemed the agency's review could be further delayed as Martin had planned a trip to Asia to meet other regulators. The FCC wasn't likely to reject the deal, Orol had pointed out, though "ferocious quarreling will
likely take place among the agency's Republican and Democratic
commissioners over possible concessions," he wrote recently. Some of the concessions the companies agreed to, the Post noted, include: price caps, a la carte programming and setting aside 4% of their spectrums for educational or public safety broadcasting. On April 30, the broadcasters extended the deadline on their $13 billion merger, again, to May 15. Further, the companies said they could extend the deadline for "rolling two week periods" waiting for the green light from the FCC. The Justice Department cleared the $13 billion deal March 24. Ahead of the decision, Morgan offered in late March one theory as to what could have been holding things up. The companies ended February with an agreement to extend their proposed merger until May 1. As Dealscape noted, Jim Cramer blamed five congressmen for the delay. Martin reiterated March 4 his belief his commission could still complete its review by the end of the first quarter, but, Orol also noted citing FCC sources that Martin hadn't circulated the order to other commissioners, who would need at least three weeks for a review. Earlier in the month, DOJ clearance looked less certain than many investors had thought. But The Deal's Cecile Kohrs Lindell noted:
THE LONG HAUL Sirius and XM shareholders approved the deal back in November, but regulatory clearance remained an outstanding issue with the underlying questions centering on competition. So, The Deal's Baz Hiralal pointed out that "it's always nice when a former chairman of one of these regulatory agencies steps up to support your deal." One-time FCC chairman Reed Hundt threw his support behind the merger, despite the agency having granted the companies licenses in 1997 on the condition that the two satellite radio broadcasters wouldn't team up to create a monopoly. Hiralal writes:
Antitrust lawyers told Lindell Nov. 8 it looked like the Department of Justice would OK the deal by month's end, despite staff-level opposition. Days earlier, as part of a separate review, the FCC requested information from XM and Sirius relating to competition issues with a Nov. 16 deadline. Lindell wrote: WORD FOR WORD Eight months after Sirius CEO Karmazin said at The Deal's Tech Confidential Convergence 2.0 conference that no way, no how would the company merge with XM, a $13 billion deal was announced Feb. 19. Six months later, and a month ahead of The Deal's September 2007 convergence conference, he argued the merits of a tie-up to the FCC and the DOJ. And why not fight for a merger of the U.S.' two satellite radio broadcasters? As The Deal's Bill McConnell pointed out, though he faces opposition from lawmakers and advocacy groups fighting consolidation, Karmazin's dealmaking career includes highlights of pushing deals through the FCC.
WHAT REGULATORS WANT Karmazin was at it again over the summer in 2007. He argued the merits of an XM-Sirius merger in mid-July, pointing to a la carte options and lower-cost programming packages, long-favored by the FCC's Martin. Among the options he touted at the time were:
Karmazin also proposed a price control in March. Instead of the $12.95 a month consumers pay for Sirius content today, consumers could opt for a bundled option for $8.95 or $9.95 a month. Cable operators have maintained it is too expensive, too complicated and could drive programmers out of business. Ultimately pushing the deal past the DOJ, could have been another story entirely, McConnell wrote:
XM and Sirius said April 12 they received a second request for information from the DOJ. They then said Oct. 4 they would permit the DOJ to extend its review. CHOOSING SIDES The debate touches on other hot-button issues, radio consolidation in general, market competition and local radio ownership limits. The latter is something the largest radio group in the U.S., Clear Channel Communications Inc., has lobbying hard against. Clear Channel has agreed to sell more than 400 stations in smaller markets, but it wants permission to own more in larger locales. In the tricky endeavor, Karmazin drew both favor and fire. Among those to express opposition are the National Association of Broadcasters, National Public Radio media activist groups and more than 70 congressional lawmakers. The companies pledged to offer more diverse programming, winning favor with minority rights groups like the African Methodist Episcopal Church, the Catholic Archdiocese of New York and the NAACP. Others to express support have included Americans for Tax Reform and the Competitive Enterprise Institute. NOTHING NEW HERE. OR IS THERE? Both satellite groups were struggling in 2002. Sirius warned that without a serious cash infusion from its private equity backers it would teeter near bankruptcy, and XM considered adopting a poison pill provision to prevent a takeover. Merger rumors have long swirled around the two. A January 2005 New York Post report indicated
the two had come together to discuss a merger and that talks, while
fruitless, had occurred over several years. Karmazin's comments at the
2006 convergence conference triggered several press reports missing what he was saying.
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