Satellite mogul Charles Ergen made an unsolicited offer late last year to take control of Sirius XM Radio Inc., and was rebuffed, according to people familiar with the situation.
Mr. Ergen proposed for one of his satellite companies -- EchoStar Corp. or Dish Network Corp. -- to inject enough capital into Sirius for it to meet its debt obligations and avoid a bankruptcy filing, these people said. Despite the rejection, Mr. Ergen has recently reiterated his interest in taking control of Sirius.
Mr. Ergen isn't seeking to force Sirius into bankruptcy proceedings in order to acquire its assets more cheaply, according to a person familiar with his strategy. He believes that satellite radio would complement his television operation. Both are subscriber-based programming businesses that rely on similar technology.
A spokesman for EchoStar declined to comment.
Even if Mr. Ergen succeeds in acquiring control of Sirius, however, it is far from certain that federal regulators, whose approval would be required, would welcome the union of satellite television and radio. A deal would likely face close scrutiny and a lengthy review.
Mr. Ergen's overture suggests that he has been planning his run at the company for some time. EchoStar began accumulating Sirius debt several months ago, according to people familiar with the situation.
It was only last week, however, that EchoStar acquired control of a piece of Sirius's debt that could determine the company's fate. The debt in question is a $175 million tranche that matures Feb. 17.
Sirius doesn't have enough cash to repay the bonds, and had been in negotiations with the hedge fund that previously held the notes to exchange them for a combination of more senior debt and equity. Before Sirius could reach a deal with the hedge fund, however, EchoStar stepped in and acquired the debt, giving Mr. Ergen more leverage.
Sirius's predicament shows how the credit crisis has left many companies vulnerable. After Sirius's merger with rival satellite-radio operator XM was approved in late July, it began planning to refinance its debt. Yet within weeks of the deal's close the financial crisis began to envelop Wall Street, making it all but impossible for companies to tap the credit markets.
Mr. Ergen's move has put Sirius Chief Executive Mel Karmazin in a corner. In discussions with investors last week, Mr. Karmazin said that unless he could raise $175 million, he would be faced with one of two options: having Sirius file for bankruptcy or cutting a deal with Mr. Ergen. The bankruptcy option probably would be the least attractive for shareholders.
A bankruptcy filing would leave Sirius in the hands of its banks and wipe out its equity holders, including Mr. Karmazin, who recently invested millions of dollars in the company. It would also be difficult to justify to other shareholders, given that Mr. Ergen has offered an alternative.
A Sirius spokesman didn't respond to a request for comment.
Sirius has a total debt load of about $3.25 billion, $600 million of which is bank debt that would have to be redeemed immediately in the case of a change of control, under terms of the company's agreement with its banks.
On Friday, Sirius shares fell 4 cents, or 21%, to 13 cents in 4 p.m. New York Stock Exchange composite trading. The company's market value is $456 million
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