Liberty/Sirius Would Hurt DirecTV Roll Up: Analyst
Collins Stewart's Egan Calls Deal "Highly Unlikely"
Mike Farrell -- Multichannel News, 2/12/2009 4:18:03 PM
Liberty Media's reported moves to invest in or acquire satellite radio giant Sirius XM Radio would have a detrimental affect on the content giant's stated plans to roll up its interest in DirecTV, Collins Stewart media analyst Tom Eagan said in a research note Thursday.
According to reports in The Wall Street Journal and The New York Times, Liberty chairman John Malone is mulling whether to become a white knight for Sirius, which faces a $175 million debt payment next week. According to both papers, Malone has been in talks with Sirius CEO Mel Karmazin about a possible investment or buying the company outright.
Sirius, which merged with its satellite radio rival XM Satellite Radio in July, has struggled with heavy losses and a plunging stock price over the past several months. Last week, it was revealed that the sat radio giant had rejected a buyout offer from EchoStar Communications chairman Charlie Ergen last year. EchoStar has purchased the bulk of a $300 million Sirius debt tranche, of which $175 million is due on Feb. 17. Sirius has indicated that it cannot make that payment and has investigated filing for bankruptcy protection or finding an investor.
While Malone could fit that bill, Eagan wrote that it is "highly unlikely," because Liberty is in the middle of transforming its Liberty Entertainment tracking stock into an asset-based security. One of the key components to that "hard spin" is rolling up and possibly increasing its 50% stake in satellite TV giant DirecTV Group.
Eagan wrote that adding Sirius to the Liberty Entertainment mix would only complicate a transaction with DirecTV.
"We do not believe that Liberty initiated the dialogue with [Sirius]," Eagan wrote. "Additionally, we believe DirecTV management does not want [Sirius] combined with its operations. DirecTV certainly does not need it. Their operations lead the industry."
Eagan added that the two other Liberty tracking stocks -- Liberty Interactive and Liberty Capital -- couldn't shoulder Sirius' $3.3 billion in debt.
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