* Liberty files new FCC petition for control
* Liberty asks for more board seats
* Liberty intends to convert half of shares to common
* Sirius XM says was not informed of board request
By Liana B. Baker
May 31 (Reuters) – Liberty Media Corp’s John Malone
and Sirius XM Radio Inc’s Mel Karmazin are using the
regulatory system to go to war over control of the satellite
radio company.
Liberty, which already holds five of 13 Sirius XM board
seats, said in a regulatory filing Thursday morning that it
wants to take over a majority of Sirius’ board–a disclosure
Malone made without informing Karmazin.
Sirius XM shot back in its own regulatory filing Thursday
afternoon that it has been in discussions with Liberty about
transactions related to Liberty’s stake in the company but had
not reached an agreement or been informed of Liberty’s plans to
shake up the board.
Sirius XM’s filing further noted that new directors could
not be added to its board without a special meeting that can
only be called by two current directors or the chief executive.
A proposal can also be made at the annual meeting, but that is
at least a year away. Meanwhile, replacing the entire board
would “require the consent of a majority of our outstanding
common stock,” Sirius XM said.
Both companies did not respond to requests for comment on
Thursday.
Liberty’s new plan is “very likely to succeed,” Lazard
Capital Markets analyst Barton Crockett said in a research note.
With control of the board, “Liberty may retain its stake long
enough to transition to a new CEO,” Crockett said.
Malone, a cable industry pioneer who Al Gore famously
derided as “Darth Vader,” is no stranger to battles with media
titans. The reclusive billionaire has faced off with News Corp’s
Rupert Murdoch numerous times, and in 2008 nearly
brought a two decade-long friendship with Barry Diller to an end
by trying to gain control of his IAC Corp. Liberty,
which held a large stake in IAC at the time, ultimately failed
in its bid, but made Diller endure an ugly court battle in the
process.
Englewood, Colorado-based Liberty in its filing Thursday
also asked the U.S. Federal Communications Commission to
reconsider a May 4 refusal of Liberty’s previous application to
take control of Sirius. Liberty said it plans to convert half of
its preferred shares to common stock and hold about 32 percent
of outstanding shares.
Earlier this month, Liberty raised its stake in Sirius to
46.2 percent from 40 percent as it bought another 60.35 million
shares but did not announce its plan to convert to common stock
until Thursday.
NOT GOOD AT BEING NO. 2
Malone’s attempt to gain control of Sirius goes to the heart
of Karmazin’s biggest fear as a corporate executive–not being
in control of his own destiny.
The Sirius XM leader rose to fame in media and Wall Street
circles as the CEO of Infinity Broadcasting and CBS Corp
. But, after merging CBS with Viacom Inc,
Karmazin felt stifled as the second-in-command under the
combined company’s controlling shareholder, Sumner Redstone.
Karmazin, known for his hard-charging sales techniques,
repeatedly clashed with Redstone and quit after just three
years.
“I’m not really good at working for somebody. I just could
not be a No. 2,” Karmazin admitted to Reuters last year.
Earlier this month Karmazin said he would “protect the
rights” of Sirius’s shareholders and would not want Malone
seizing the company without paying a premium.
Gabelli & Co analyst Brett Harriss said Malone does not
necessarily want to push out Sirius management. Instead, he
thinks Malone, who holds a PhD in mathematics and is known for
his Byzantine deal structures, may simply be trying to design a
complicated deal with Sirius XM to save on taxes.
“It doesn’t mean Mel (Karmazin) will leave but it means that
Liberty will control the board and Liberty and Sirius can put
together a Reverse Morris Trust transaction,” Harriss said.
Such a transaction could allow Liberty to spin out its
Sirius stake and combine it with the rest of the company as a
way to distribute Sirius shares to Liberty Media shareholders in
a tax-efficient manner, according to Harriss.
Malone engineered a similar deal in 2009 with satellite TV
operator DirecTV.
Liberty owns stakes in a variety of businesses, including
book retailer Barnes & Noble Inc, concert promoter Live
Nation Entertainment Inc, and cable television company
Discovery Communications Inc.
In 2009, Liberty became the largest shareholder in Sirius
after it floated the company a $530 million loan to help it
avoid bankruptcy. Terms of that deal allowed for Liberty to
convert the loan into preferred shares.
The company Liberty rescued in 2009 is in much stronger
shape four years later, thanks in no small part to Karmazin. It
has gained a key foothold in the vehicles market, which is
seeing a rebound, with its radios in 70 percent of new cars in
the United States. The company, which serves as the radio home
for shock jock Howard Stern, ended last quarter with an all-time
high 22.3 million paying users.
Sirius XM shares were unchanged at $1.89, while Liberty fell
0.7 percent at $83.08.
