Liberty Saves Sirius XM From Bankruptcy
By Morelli
Liberty Media Corp has agreed to lend $530 million to Sirius XM Radio Inc. in exchange for 40 percent of the satellite radio provider. The deal effectively saved the company from bankruptcy, and sent the value of its shares up 100 percent.
We reported last week that Sirius XM was neck deep in debt, trading at 8 cents a share and dangerously close to bankruptcy. The current agreement is that Liberty will give $280 million to Sirius XM, to pay for a $171.6 million debt, and then provide another $250 million to XM Satellite Radio. In return, Liberty gets 12.5 million shares of Sirius XM stock, which is 40 percent of the company.
People aren’t buying satellite radio, the credit markets are stingy, and the company doesn’t have a short term plan. Perhaps the trend could catch on in the future, but free online radio stations are dominating the market for the time being. Would you pay to listen to music on the radio, or would you go online for free services like Pandora and Last.fm? Easy choice.
However, Liberty Chief Executive Greg Maffei told Reuters that Sirius XM is just a good company in unfortunate circumstances, and has nearly 20 million subscribers, which makes it an attractive bet. Sure enough, today shares of Sirius closed at 16 cents. Maffei and John Malone will join the Sirius board to watch over their investment.
How competitive is satellite radio in the free Internet radio era? How should Sirius XM react to its good fortune?
Photo via siriusbuzz.com
Source: Reuters
