bdp's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/260707/comments http://seekingalpha.com/article/140174-100-oem-penetration-doesn-t-make-sirius-sense-yet?source=feed#comment-522680 522680 Fri, 29 May 2009 09:16:49 -0400 http://seekingalpha.com/article/121653-rbc-barclays-weigh-in-on-sirius?source=feed#comment-396844 396844 Fri, 20 Feb 2009 13:06:26 -0500 http://seekingalpha.com/article/121653-rbc-barclays-weigh-in-on-sirius?source=feed#comment-396843 396843 Fri, 20 Feb 2009 13:05:37 -0500 http://seekingalpha.com/article/121653-rbc-barclays-weigh-in-on-sirius?source=feed#comment-396830 396830 Fri, 20 Feb 2009 12:58:18 -0500 http://seekingalpha.com/article/121653-rbc-barclays-weigh-in-on-sirius?source=feed#comment-396680 396680 Fri, 20 Feb 2009 11:41:24 -0500 http://seekingalpha.com/article/121653-rbc-barclays-weigh-in-on-sirius?source=feed#comment-396463 396463 Fri, 20 Feb 2009 10:17:18 -0500 http://seekingalpha.com/article/121653-rbc-barclays-weigh-in-on-sirius?source=feed#comment-396423 396423 Fri, 20 Feb 2009 10:03:07 -0500 http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395961 395961 Thu, 19 Feb 2009 22:17:22 -0500 http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395958 395958 Thu, 19 Feb 2009 22:14:23 -0500 http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395957 395957 Thu, 19 Feb 2009 22:11:48 -0500 http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395955 395955
On Feb 19 09:59 PM bdp wrote:

> The appropriate price is exactly the absolute lowest denomination
> they can get away with. You can be sure, if the time came, there
> will be all kinds of depreciation formulations and depressed market
> values factored in that would bring the value closer to chump change
> than it is to 6 billion.]]> Thu, 19 Feb 2009 22:09:38 -0500
On Feb 19 09:59 PM bdp wrote:

> The appropriate price is exactly the absolute lowest denomination
> they can get away with. You can be sure, if the time came, there
> will be all kinds of depreciation formulations and depressed market
> values factored in that would bring the value closer to chump change
> than it is to 6 billion.]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395949 395949

On Feb 19 10:01 PM cos1000 wrote:

> Bdp,
>
> I guess we'll have to just keep bailing..... and then we swim...]]> Thu, 19 Feb 2009 22:03:02 -0500

On Feb 19 10:01 PM cos1000 wrote:

> Bdp,
>
> I guess we'll have to just keep bailing..... and then we swim...]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395946 395946

On Feb 19 09:58 PM cos1000 wrote:

> Bdp,
> You and I have woken from different comas to find the same ugly reality.....
> Let's see if all of this speculation while the wheels of the deal
> are still turning gets us..... If it goes up .05 without any news
> tomorrow, I will sell 1/4 of my shares and buy them back on Monday.
> What can I say.... its going to take real news to sustain any type
> of turn around.... We will know that News when it comes, everything
> else is a head fake.... Good night and good luck.......... thanks
> for sharing your honest opinion with me and the board....]]> Thu, 19 Feb 2009 22:01:06 -0500

On Feb 19 09:58 PM cos1000 wrote:

> Bdp,
> You and I have woken from different comas to find the same ugly reality.....
> Let's see if all of this speculation while the wheels of the deal
> are still turning gets us..... If it goes up .05 without any news
> tomorrow, I will sell 1/4 of my shares and buy them back on Monday.
> What can I say.... its going to take real news to sustain any type
> of turn around.... We will know that News when it comes, everything
> else is a head fake.... Good night and good luck.......... thanks
> for sharing your honest opinion with me and the board....]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395945 395945

On Feb 19 09:54 PM seri wrote:

> Cos,
>
> I have no idea what is an "appropriate" offer to be bought out is
> at this point. The company is worth more than the stock price for
> sure and I personally need a $.57 price (as of today) to come out
> even.
>
> But what is a likely take over / take private price at this point??
> .30? .60? 1.60? I have no idea how to even guess at the answer.

>
>
> On Feb 19 09:35 PM cos1000 wrote:]]> Thu, 19 Feb 2009 21:59:29 -0500

On Feb 19 09:54 PM seri wrote:

> Cos,
>
> I have no idea what is an "appropriate" offer to be bought out is
> at this point. The company is worth more than the stock price for
> sure and I personally need a $.57 price (as of today) to come out
> even.
>
> But what is a likely take over / take private price at this point??
> .30? .60? 1.60? I have no idea how to even guess at the answer.

>
>
> On Feb 19 09:35 PM cos1000 wrote:]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395942 395942

On Feb 19 09:53 PM cos1000 wrote:

> By the way Bdp,
>
> I absolutely agree that this company has a grip on me.... It also
> currently has me underwater and I don't like it..... I do not trade
> share every day..... as matter of fact this is the only company I
> trade that way. By doing the painful, not life enhancing trading,
> of this company now..... I will be able to get out of it sooner.
> There definitely something wrong with what's going on with this company.....
> It is very apparent that investing in it was a mistake made a long
> time ago. I am, like others just trying to get some of it back and
> I can be like a pit bull when I think someone has taken my trust
> and then money from me... I can't call a cop because they, the SEC,
> could care less....]]> Thu, 19 Feb 2009 21:55:30 -0500

On Feb 19 09:53 PM cos1000 wrote:

> By the way Bdp,
>
> I absolutely agree that this company has a grip on me.... It also
> currently has me underwater and I don't like it..... I do not trade
> share every day..... as matter of fact this is the only company I
> trade that way. By doing the painful, not life enhancing trading,
> of this company now..... I will be able to get out of it sooner.
> There definitely something wrong with what's going on with this company.....
> It is very apparent that investing in it was a mistake made a long
> time ago. I am, like others just trying to get some of it back and
> I can be like a pit bull when I think someone has taken my trust
> and then money from me... I can't call a cop because they, the SEC,
> could care less....]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395938 395938 Thu, 19 Feb 2009 21:53:51 -0500 http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395934 395934 I can clearly see your logic and appreciate your views. I just feel like I have come out of a coma and I am not happy with what I see. This company continues to keep us at the chump level and they know they will continue to get away with it. They have us all believing in them over and over again as we are fed just enough to divert us from reality. And if tomorrow there is a 5 penny rise in the sp, well all is forgiven and happy days are here again, until Monday when it drops 6 cents. I understand that this problem is not just exclusive to Sirius. There are many companies folding and in deep trouble because of the economy. But I am sure most of them are trying to survive through this rough time rather than exploit it as an opportunity of a lifetime. This is what disturbs me the most.]]> Thu, 19 Feb 2009 21:49:24 -0500 I can clearly see your logic and appreciate your views. I just feel like I have come out of a coma and I am not happy with what I see. This company continues to keep us at the chump level and they know they will continue to get away with it. They have us all believing in them over and over again as we are fed just enough to divert us from reality. And if tomorrow there is a 5 penny rise in the sp, well all is forgiven and happy days are here again, until Monday when it drops 6 cents. I understand that this problem is not just exclusive to Sirius. There are many companies folding and in deep trouble because of the economy. But I am sure most of them are trying to survive through this rough time rather than exploit it as an opportunity of a lifetime. This is what disturbs me the most.]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395919 395919
On Feb 19 09:26 PM 360492 wrote:

> Bankruptcy comes later!! Read " How to Buy Satellllites Cheaply-
> As Shown by Liberty Media." You'll find the report on Briefing
> .Com
>
> Now what do you think?]]> Thu, 19 Feb 2009 21:30:14 -0500
On Feb 19 09:26 PM 360492 wrote:

> Bankruptcy comes later!! Read " How to Buy Satellllites Cheaply-
> As Shown by Liberty Media." You'll find the report on Briefing
> .Com
>
> Now what do you think?]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395904 395904
On Feb 19 09:07 PM OldDruid wrote:

> I simply point out, that in this time of extreme global financial
> chaos, were all the shareholders to stage a successful revolt, replacing
> management with unknowns, in a company that was this close to death,
> might not be the best idea, if one thinks it through. I do understand
> the sentiment. I felt the same way about the company I worked for
> some 15 years back. Sometimes it is better to wait until the company
> has a little more strength, then start accountability efforts.

>
> just my opinion
>
>
> On Feb 19 08:50 PM bdp wrote:]]> Thu, 19 Feb 2009 21:16:55 -0500
On Feb 19 09:07 PM OldDruid wrote:

> I simply point out, that in this time of extreme global financial
> chaos, were all the shareholders to stage a successful revolt, replacing
> management with unknowns, in a company that was this close to death,
> might not be the best idea, if one thinks it through. I do understand
> the sentiment. I felt the same way about the company I worked for
> some 15 years back. Sometimes it is better to wait until the company
> has a little more strength, then start accountability efforts.

>
> just my opinion
>
>
> On Feb 19 08:50 PM bdp wrote:]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395899 395899 Thu, 19 Feb 2009 21:12:05 -0500 http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395880 395880

On Feb 19 08:47 PM OldDruid wrote:

> >>bdp,
> Sometimes its better to keep the devil you know, than getting one
> you don't.
> Especially in a time of chaos
> just my opinion]]> Thu, 19 Feb 2009 20:50:43 -0500

On Feb 19 08:47 PM OldDruid wrote:

> >>bdp,
> Sometimes its better to keep the devil you know, than getting one
> you don't.
> Especially in a time of chaos
> just my opinion]]> http://seekingalpha.com/article/121488-the-sirius-price-of-liberty?source=feed#comment-395872 395872
So. Now we are definately going to be diluted.
At least no bankruptcy. (whoopee...)
So, our shares lose more value and will never gain momentum on their own, if at all.
Sirius Corporate does nothing to help SP so our shares remain anemic.
And of course, as usual, the company remains stagnant.
But on the up side, Mel is happy! Not to difficult to understand why.

Guys, this is not how it is supposed to work.
Mel wants this company for himself. HE SAID SO!!
Bold faced, right from the horses mouth. No secret.
"Would LOVE to take Sirius private"
Is there anything I am missing or has Mel in deed been positioning himself to acquire this "extremely distressed" company that he has been doing everything in his power to "save from bankruptcy". Seems more and more likely to have a problem plagued future in its current state, does it not? No only do his strategies make no sense to us, they do not make sense in any realm where a positive progressive outcome is expected. And why no leaks from Ergen? Because he is in on it. He was promised a nice windfall (which he did receive) if he agreed to play the part of the "aggressor", but tell no one. It is impossible for someone to keep the unsolicited "secret offer" a secret. Especially if you had supposedly been humiliated by a flat out rejection. In the real world, Ergen would have spilled the beans the minute Mel rejected his offer. This would have put such a "what are you 4king nuts?" spin on Mel's insane logic that he would have to be led away in a straight jacket leaving Ergen holding the cards. You see, there was no offer in December. There was no offer last week . And phoney Maloney, just another of Mels partners in crime. He was given a sweet deal that was disguised as him lending a helping hand. It was not a bailout and he is not a "White Knight" as we all now know. If he were, the May debt would not have been left flapping in the breeze. As far as the timing, Mel had this entire scheme in place many months ago. I am sure if there was a way to investigate, we would probably be shocked to learn that there was never any real attempt to refinance the debt through conventional lending institutions either. No need to. Why undermine a perfect opportunity to acquire a 6 billion dollar company for less than 20% if its value? And us shareholders? It is true that we are not even on the totem pole. We are weak and out of the way right where he wants us. We can make no trouble for him. Simply put, Mel wants this company. He thinks he deserves it. After so many years of others benefiting immensely from his efforts, now it is his turn. He wants it all and will be damned if anything gets in his way. After all, money is power. And Mel, the big ego with the little dink, needs to be up high on that list before he depart this world making that b- line to hell where he will be buried up to his eyeballs in our excrement for all eternity. Worth it Mel? I'm glad you think so.
So how much longer are we going to speculate? If it looks like a duck, walks like a duck and quacks like a duck... What more is there to say. We have enough proof in just this posts to bring him down. That should be our goal right now. Stop beating a dead "dog" or "pig" or whatever analogy you choose. Time to spring to action and bring the bastard down before he has the last laugh! I don't know about you guys, but Sirius XM is my company as well. I own 400000 shares of it and I demand that the people running my company be held absolutely accountable for the mess we are in. Mel needs to be thrown to the dogs. Plain and simple. We must petition to remove him. Is anyone here interested?]]> Thu, 19 Feb 2009 20:36:59 -0500
So. Now we are definately going to be diluted.
At least no bankruptcy. (whoopee...)
So, our shares lose more value and will never gain momentum on their own, if at all.
Sirius Corporate does nothing to help SP so our shares remain anemic.
And of course, as usual, the company remains stagnant.
But on the up side, Mel is happy! Not to difficult to understand why.

Guys, this is not how it is supposed to work.
Mel wants this company for himself. HE SAID SO!!
Bold faced, right from the horses mouth. No secret.
"Would LOVE to take Sirius private"
Is there anything I am missing or has Mel in deed been positioning himself to acquire this "extremely distressed" company that he has been doing everything in his power to "save from bankruptcy". Seems more and more likely to have a problem plagued future in its current state, does it not? No only do his strategies make no sense to us, they do not make sense in any realm where a positive progressive outcome is expected. And why no leaks from Ergen? Because he is in on it. He was promised a nice windfall (which he did receive) if he agreed to play the part of the "aggressor", but tell no one. It is impossible for someone to keep the unsolicited "secret offer" a secret. Especially if you had supposedly been humiliated by a flat out rejection. In the real world, Ergen would have spilled the beans the minute Mel rejected his offer. This would have put such a "what are you 4king nuts?" spin on Mel's insane logic that he would have to be led away in a straight jacket leaving Ergen holding the cards. You see, there was no offer in December. There was no offer last week . And phoney Maloney, just another of Mels partners in crime. He was given a sweet deal that was disguised as him lending a helping hand. It was not a bailout and he is not a "White Knight" as we all now know. If he were, the May debt would not have been left flapping in the breeze. As far as the timing, Mel had this entire scheme in place many months ago. I am sure if there was a way to investigate, we would probably be shocked to learn that there was never any real attempt to refinance the debt through conventional lending institutions either. No need to. Why undermine a perfect opportunity to acquire a 6 billion dollar company for less than 20% if its value? And us shareholders? It is true that we are not even on the totem pole. We are weak and out of the way right where he wants us. We can make no trouble for him. Simply put, Mel wants this company. He thinks he deserves it. After so many years of others benefiting immensely from his efforts, now it is his turn. He wants it all and will be damned if anything gets in his way. After all, money is power. And Mel, the big ego with the little dink, needs to be up high on that list before he depart this world making that b- line to hell where he will be buried up to his eyeballs in our excrement for all eternity. Worth it Mel? I'm glad you think so.
So how much longer are we going to speculate? If it looks like a duck, walks like a duck and quacks like a duck... What more is there to say. We have enough proof in just this posts to bring him down. That should be our goal right now. Stop beating a dead "dog" or "pig" or whatever analogy you choose. Time to spring to action and bring the bastard down before he has the last laugh! I don't know about you guys, but Sirius XM is my company as well. I own 400000 shares of it and I demand that the people running my company be held absolutely accountable for the mess we are in. Mel needs to be thrown to the dogs. Plain and simple. We must petition to remove him. Is anyone here interested?]]> http://seekingalpha.com/article/121378-6-key-points-from-the-liberty-sirius-xm-deal-merrill?source=feed#comment-395694 395694 Thu, 19 Feb 2009 17:00:23 -0500 http://seekingalpha.com/article/121378-6-key-points-from-the-liberty-sirius-xm-deal-merrill?source=feed#comment-395036 395036 Thu, 19 Feb 2009 10:42:23 -0500 http://seekingalpha.com/article/121378-6-key-points-from-the-liberty-sirius-xm-deal-merrill?source=feed#comment-394998 394998 Thu, 19 Feb 2009 10:25:29 -0500 http://seekingalpha.com/article/121378-6-key-points-from-the-liberty-sirius-xm-deal-merrill?source=feed#comment-394941 394941 Thu, 19 Feb 2009 10:04:58 -0500 http://seekingalpha.com/article/121378-6-key-points-from-the-liberty-sirius-xm-deal-merrill?source=feed#comment-394699 394699 Thu, 19 Feb 2009 08:10:23 -0500 http://seekingalpha.com/article/121378-6-key-points-from-the-liberty-sirius-xm-deal-merrill?source=feed#comment-394694 394694 Thu, 19 Feb 2009 08:08:11 -0500 http://seekingalpha.com/article/121378-6-key-points-from-the-liberty-sirius-xm-deal-merrill?source=feed#comment-394679 394679
This is the most f*cked up situation I have ever come across! Without doubt absolutely criminal! There is absolute merit to a class action suit as well as a criminal suit here. I feel completely speechless! And it does not stop here. I am sure with just a bit of scratching at the surface, the entire market is oozing this same style scenario which has cost us honest by the book investors trillions! Massive conspiracy... Not a theory but a FACTt! And why has the SEC been allowed to be operated as the pawns of the criminals? Is anyone awake in our government or is everything designed as a diversion!]]> Thu, 19 Feb 2009 07:59:45 -0500
This is the most f*cked up situation I have ever come across! Without doubt absolutely criminal! There is absolute merit to a class action suit as well as a criminal suit here. I feel completely speechless! And it does not stop here. I am sure with just a bit of scratching at the surface, the entire market is oozing this same style scenario which has cost us honest by the book investors trillions! Massive conspiracy... Not a theory but a FACTt! And why has the SEC been allowed to be operated as the pawns of the criminals? Is anyone awake in our government or is everything designed as a diversion!]]> http://seekingalpha.com/article/121378-6-key-points-from-the-liberty-sirius-xm-deal-merrill?source=feed#comment-394641 394641
Distressed deals are sausage. The panic-driven negotiations of the distressed company and the leverage of its savior often work to create both extreme and unusual provisions.

So, it is with this hope that I perused the press release of Sirius XM Radio announcing that Liberty Media would provide up to $530 million in loans to Sirius XM and receive a 40 percent stake in Sirius.

The press release was disappointing and quite short on details about the transaction. Sirius, however, also filed a Form 8-K with the Securities and Exchange Commission on Wednesday disclosing the announcement of the transaction. This is typical. Also typical was Sirius’s fuller description of the transaction in the Form 8-K itself. It was here that my search yielded some fruit.
Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the legal aspects of mergers, private equity and corporate governance. A former corporate attorney at Shearman & Sterling, he is a professor at the University of Connecticut School of Law. His columns are available at The Deal Professor blog.

First, the deal is divided into two separate transactions. The first is a credit agreement for a $250 million term loan and $30 million of purchase money loans between Sirius and Liberty Media. The $250 million loan was funded Wednesday. Both loans bear an interest rate of 15 percent a year and mature on Dec. 20, 2012. The interest rate is reflective of the distress of Sirius and the risk that Liberty is taking. In fact, Sirius used these funds to repay its $175 million in convertible notes that also came due on Wednesday.

The more interesting transaction is the second one. This is a credit agreement between Sirius’s subsidiary, the old XM Satellite Radio, and Liberty Media. The XM Credit Agreement provides for a $150 million term loan with an interest at a rate of 15 percent per annum, maturing on May 1, 2011.

Unlike the first loan, this second loan does not close immediately. Instead, the funding is subject to several conditions. These include the renegotiation of XM’s other credit agreements to extend their terms and Liberty Media’s going out and purchasing in the market another $100 million of this debt.

The second loan is also conditioned on Sirius’s auditors’ not issuing any “going concern” opinion on the company with respect to its 2008 audited financials. A “going concern” caveat in an auditor opinion is code that a company is likely to go bankrupt without additional financing.

In connection with this second loan, Liberty is receiving a 40 percent interest in Sirius. Here, I was surprised that no mention of a shareholder vote was in the press release or the Form 8-K. Nasdaq MarketPlace Rule 4350(i) requires a shareholder vote when a Nasdaq-listed company issues common stock or securities convertible into common stock with a 20 percent or greater voting power.

But there is an exception that was used in the Bear Stearns and Wachovia deals under a similar New York Stock Exchange rule. A company can forgo this shareholder vote if “the delay in securing stockholder approval would seriously jeopardize the financial viability of the enterprise.” I assume Sirius is relying on this exception, but if the company is going this route it is not highlighting it.

In addition, there is no explanation for why 40 percent, but I assume that it had to be below a controlling stake in order to avoid violating covenants on Sirius’s other debt.

The mechanics of the issuance of the 40 percent stake in Sirius is where it gets interesting. Liberty Media is receiving 12.5 million shares of convertible preferred stock in Sirius in connection with the loans. Upon antitrust clearance, the stock becomes convertible into common stock of Sirius.

However, the preferred stock is only issuable upon the satisfaction of the conditions to funding the XM loan, the second loan.

The result is that Sirius has a period of time during which it can find an alternative transaction. Here the form 8-K states that:

If, prior to April 15, 2009, we receive an alternative proposal that our Board of Directors concludes in good faith is a Superior Proposal … our Board of Directors may terminate the Investment Agreement in order to transact the Superior Proposal. After April 15, 2009, we may terminate the Investment Agreement if our Board of Directors determines it is in our best interests to do so…

“Superior Proposal” is defined in the Form 8-K as:

a bona fide written alternative proposal that our Board of Directors in good faith determines, after consultation with its legal and financial advisors, would, if accepted, be reasonably capable of being consummated, taking into account legal, financial, regulatory, timing and similar aspects of the proposal and the person making the proposal, and would, if consummated, result in a transaction more favorable to our stockholders from a financial point of view than the transaction contemplated by the Investment Agreement.

So, the parties have created a rather intricate structure that unwinds if a superior proposal is made and accepted before the stock issuance under the investment agreement. If such a proposal is made and accepted, the stock issuance and the second-phase loan do not occur. Liberty is also entitled to a $7 million termination fee. In addition, if a superior bid is successful, Liberty can demand that the first loan be repaid with a $14 million premium.

The end result is that while the bidding for Sirius looks over, it might not be. Sirius has negotiated an out if a superior bid is made before the second loan closes. By putting this announcement in its Form 8-K, Sirius is acting to alert the world.

The agreements for this transaction have not yet been filed with the S.E.C. In fact, they are probably still being negotiated before the deadline for filing, which is next Monday. We will know then how large the opening Sirius has preserved for itself. I suspect there will be more surprises and tricks as the lawyers struggle for every advantage.

Ultimately, though, the Sirius precedent shows that even in a distressed situation, a target can negotiate some possible out. The question I have is whether Sirius was able to do this because of bargaining leverage or an argument under Delaware law that this was necessary. The standard the Delaware Chancery Court would likely apply here would be Unocal. This requires that a board not act in a preclusive or coercive nature and that its response be reasonable in relation to the threat posed.

Here, the threat would either be corporate bankruptcy or an intervening bid. Given Sirius’s distressed situation and the 40 percent threshold, Unocal review if it applied, would likely be satisfied. This may be another reason for the 40 percent number — it prevents an argument that this issuance was preclusive or coercive.

Ultimately, though, I can’t see these parties (Mel Karmazin, the chief executive of Sirius, and John C. Malone, the chairman of Liberty) caring too much about this risk. Still, the lawyers may have played it safe. ]]> Thu, 19 Feb 2009 07:18:44 -0500
Distressed deals are sausage. The panic-driven negotiations of the distressed company and the leverage of its savior often work to create both extreme and unusual provisions.

So, it is with this hope that I perused the press release of Sirius XM Radio announcing that Liberty Media would provide up to $530 million in loans to Sirius XM and receive a 40 percent stake in Sirius.

The press release was disappointing and quite short on details about the transaction. Sirius, however, also filed a Form 8-K with the Securities and Exchange Commission on Wednesday disclosing the announcement of the transaction. This is typical. Also typical was Sirius’s fuller description of the transaction in the Form 8-K itself. It was here that my search yielded some fruit.
Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the legal aspects of mergers, private equity and corporate governance. A former corporate attorney at Shearman & Sterling, he is a professor at the University of Connecticut School of Law. His columns are available at The Deal Professor blog.

First, the deal is divided into two separate transactions. The first is a credit agreement for a $250 million term loan and $30 million of purchase money loans between Sirius and Liberty Media. The $250 million loan was funded Wednesday. Both loans bear an interest rate of 15 percent a year and mature on Dec. 20, 2012. The interest rate is reflective of the distress of Sirius and the risk that Liberty is taking. In fact, Sirius used these funds to repay its $175 million in convertible notes that also came due on Wednesday.

The more interesting transaction is the second one. This is a credit agreement between Sirius’s subsidiary, the old XM Satellite Radio, and Liberty Media. The XM Credit Agreement provides for a $150 million term loan with an interest at a rate of 15 percent per annum, maturing on May 1, 2011.

Unlike the first loan, this second loan does not close immediately. Instead, the funding is subject to several conditions. These include the renegotiation of XM’s other credit agreements to extend their terms and Liberty Media’s going out and purchasing in the market another $100 million of this debt.

The second loan is also conditioned on Sirius’s auditors’ not issuing any “going concern” opinion on the company with respect to its 2008 audited financials. A “going concern” caveat in an auditor opinion is code that a company is likely to go bankrupt without additional financing.

In connection with this second loan, Liberty is receiving a 40 percent interest in Sirius. Here, I was surprised that no mention of a shareholder vote was in the press release or the Form 8-K. Nasdaq MarketPlace Rule 4350(i) requires a shareholder vote when a Nasdaq-listed company issues common stock or securities convertible into common stock with a 20 percent or greater voting power.

But there is an exception that was used in the Bear Stearns and Wachovia deals under a similar New York Stock Exchange rule. A company can forgo this shareholder vote if “the delay in securing stockholder approval would seriously jeopardize the financial viability of the enterprise.” I assume Sirius is relying on this exception, but if the company is going this route it is not highlighting it.

In addition, there is no explanation for why 40 percent, but I assume that it had to be below a controlling stake in order to avoid violating covenants on Sirius’s other debt.

The mechanics of the issuance of the 40 percent stake in Sirius is where it gets interesting. Liberty Media is receiving 12.5 million shares of convertible preferred stock in Sirius in connection with the loans. Upon antitrust clearance, the stock becomes convertible into common stock of Sirius.

However, the preferred stock is only issuable upon the satisfaction of the conditions to funding the XM loan, the second loan.

The result is that Sirius has a period of time during which it can find an alternative transaction. Here the form 8-K states that:

If, prior to April 15, 2009, we receive an alternative proposal that our Board of Directors concludes in good faith is a Superior Proposal … our Board of Directors may terminate the Investment Agreement in order to transact the Superior Proposal. After April 15, 2009, we may terminate the Investment Agreement if our Board of Directors determines it is in our best interests to do so…

“Superior Proposal” is defined in the Form 8-K as:

a bona fide written alternative proposal that our Board of Directors in good faith determines, after consultation with its legal and financial advisors, would, if accepted, be reasonably capable of being consummated, taking into account legal, financial, regulatory, timing and similar aspects of the proposal and the person making the proposal, and would, if consummated, result in a transaction more favorable to our stockholders from a financial point of view than the transaction contemplated by the Investment Agreement.

So, the parties have created a rather intricate structure that unwinds if a superior proposal is made and accepted before the stock issuance under the investment agreement. If such a proposal is made and accepted, the stock issuance and the second-phase loan do not occur. Liberty is also entitled to a $7 million termination fee. In addition, if a superior bid is successful, Liberty can demand that the first loan be repaid with a $14 million premium.

The end result is that while the bidding for Sirius looks over, it might not be. Sirius has negotiated an out if a superior bid is made before the second loan closes. By putting this announcement in its Form 8-K, Sirius is acting to alert the world.

The agreements for this transaction have not yet been filed with the S.E.C. In fact, they are probably still being negotiated before the deadline for filing, which is next Monday. We will know then how large the opening Sirius has preserved for itself. I suspect there will be more surprises and tricks as the lawyers struggle for every advantage.

Ultimately, though, the Sirius precedent shows that even in a distressed situation, a target can negotiate some possible out. The question I have is whether Sirius was able to do this because of bargaining leverage or an argument under Delaware law that this was necessary. The standard the Delaware Chancery Court would likely apply here would be Unocal. This requires that a board not act in a preclusive or coercive nature and that its response be reasonable in relation to the threat posed.

Here, the threat would either be corporate bankruptcy or an intervening bid. Given Sirius’s distressed situation and the 40 percent threshold, Unocal review if it applied, would likely be satisfied. This may be another reason for the 40 percent number — it prevents an argument that this issuance was preclusive or coercive.

Ultimately, though, I can’t see these parties (Mel Karmazin, the chief executive of Sirius, and John C. Malone, the chairman of Liberty) caring too much about this risk. Still, the lawyers may have played it safe. ]]>