SiriusXM+Takeover

John Malone's Liberty Media Corp. (the company that owns DirectTV and the Discovery channel) has agreed to lend $530 million to Sirius XM Radio Inc in exchange for a 40 percent equity stake, saving the satellite radio provider from possible bankruptcy and sending its shares up 100 percent.

The deal also helps Sirius Chief Executive Mel Karmazin fend off a potential takeover bid by Charles Ergen's EchoStar Corp (EchoStar owns the Dish Network). EchoStar Corp had purchased Sirius debt in hopes of acquiring the company in case it defaulted on debt due Tuesday. Under the agreement, Liberty would first provide a $280 million senior secured loan to Sirius XM, of which $250 million would be funded on Tuesday to help the satellite radio company repay $171.6 million in debt that was due Feb.17, 2009.

Then Liberty would provide another $150 million loan to XM Satellite Radio, Sirius XM's wholly owned subsidiary, and also purchase up to $100 million of XM's credit facilities.

Once the loans are completed, Sirius XM would issue Liberty 12.5 million shares of preferred stock convertible into 40 percent of common stock.

Liberty would receive seats on Sirius XM's board, and expects Malone and Liberty Chief Executive Greg Maffei to join the board. The deal comes after days of talks between the two companies as pressure mounted on Karmazin to raise funds to address some $1 billion in debt due this year.

Karmazin said in a statement that he was pleased with the agreement "particularly in light of today's challenging credit markets" and that it would enhance Sirius XM's capital structure and financial flexibility.

Malone is known as a shrewd dealmaker, not someone interested in taking over and running the operation. They said it is more likely that Liberty would sell products and trade content between DirectTV and Sirius

Analysts noted that Malone was receiving a lucrative 15 percent interest rate on its $280 million, which matures in December 2012.

Advantages · For SiriusXM, the loan means a temporary reprieve from its debt troubles. Analysts said the deal may have saved the job of chief executive Mel Karmazin. · Shares of Sirius doubled to 21 cents in early trading on the Nasdaq.

Disadvantages · Sirius has been trying to refinance debt since its acquisition of rival satellite radio provider XM, which was approved last July. But tight credit markets and the weak near-term outlook for satellite radio—due to the slowdown in retail demand and downturn in the car industry where satellite radio gains most of its news subscribers—has made that tough. · With credit markets frozen, the company faces an additional $350 million in debt due in May and $400 million in December. The loan from Liberty will help cover most of the bonds that mature in May, and analysts said Sirius may be able to pay off the remainder through its own cash flow. · Sirius has never been profitable. The company pays huge fees for contracts · The economic downturn has led to fewer consumers buying subscriptions or new cars outfitted with satellite radios. · Liberty may gain even more seats, according to the deal. The number will be proportional to its ownership stake, which means the company could have three seats if Sirius maintains a board of 12 directors