The Wall Street Journal reported this morning that Echostar Chairman and CEO Charlie Ergen made a move to take control of Sirius (NSDQ: SIRI) Satellite Radio starting several months ago. The Satellite TV mogul apparently approached Sirius CEO Mel Karmazin late last year offering to inject capital into the ailing Sirius to pay off its debt and help it avoid bankruptcy. Echostar would then take control of Sirius.
According to the Wall Street Journal, Karmazin rejected the offer, hoping to come to terms with the company's creditors, who owned debt that was maturing during the first six months of 2009. Following Karmazin's rebuff, Ergen, as noted in our story from last week, began buying the convertible debt due February 2009, and last week, the more senior bank debt. If Ergen did indeed approach Karmazin with cash last year, buying the debt was likely a ploy to put additional pressure on Karmazin to come to the table and turn over control of the company.
The report of a cash offer for Sirius would support the idea that Ergen isn't after Sirius assets to launch broadband Internet and video offerings using its terrestrial repeaters and orbital slots. Instead, it would appear that Ergen sees value in Sirius as a standalone business that would complement Echostar (NSDQ: SATS). Still, in buying debt over the past several weeks, Ergen is covering his bases. If Karmazin were to accept a cash infusion, Ergen would take control of Sirius and have his loans paid off immediately. If Sirius enters into bankruptcy with Ergen holding most of its debt, then Ergen would realize the same result (control of the company) with probably a smaller cash investment. Not a bad place to be.
By Rory Maher