Can Dish's Ergen Be Sirius?

If Dish Network chairman Charlie Ergen gains control of Sirius XM Radio, it won't likely solve the problems that have plagued the satellite-TV service provider for months.

Saddled with heavy subscriber losses and a free-falling stock price, Dish isn't likely to get much bounce from owning the satellite-radio company, which faces a $175 million debt payment on Feb. 17. Ergen's pursuit of Sirius XM reflects more on Ergen's nose for a bargain.

“I can see him thinking that there is some value there, either in selling some of the assets or maybe trying to pick up some of the subscription operation if he can get rid of all of the debt,” Collins Stewart media analyst Tom Eagan said in an interview last week.

Sirius CEO Mel Karmazin was expected to make a decision over the weekend either to accept an offer from Ergen or Liberty Media chairman John Malone that would place a large chunk of Sirius equity in either man's hands, or throw in the towel and file for bankruptcy protection.

How did it come to this? Just nine months ago, Sirius was riding high on its $13.6 billion merger with XM Satellite Radio. But a crushing debt load — $3.3 billion — a faltering economy and dim hopes for the future have put Sirius' and Karmazin's back up against the wall.

According to reports in The Wall Street Journal, Ergen has purchased the bulk of a $300 million Sirius debt tranche, of which $175 million comes due Feb. 17. According to the Journal, Ergen offered to solve Sirius's funding problems late last year by buying a controlling interest in the company but was rejected by Sirius management.

The latest deal involves Ergen and his companies pumping $500 million in cash into Sirius and restructuring the debt it already holds in exchange for control of the satellite radio giant.

Last week, another wildcard entered the picture in the form of Liberty Media chairman John Malone. According to report, Liberty was in talks with Sirius concerning a possible investment in exchange for a sizeable portion of Sirius' equity.

At least one analyst believes that a Liberty/Sirius tie up is unlikely.

Eagan wrote last week that a Liberty/Sirius deal is “highly unlikely” because Liberty is in the middle of transforming its Liberty Entertainment tracking stock into an asset-based security. One of the key components to that “hard spin” is rolling up and possibly increasing its 50% stake in satellite-TV giant DirecTV Group.

Sirius continues to keep all of its options open — according to a report in The New York Times citing unnamed sources, Sirius hired two New York bankruptcy lawyers to prepare a Chapter 11 filing.

The fall of Sirius — which completed a much-ballyhooed $13.6 billion merger last year with rival XM Satellite Radio — has been near-epic in its size and scope. Just nine months ago, the two satellite-radio giants were nearing the finish line in a yearlong process to gain regulatory approval of a deal they said was essential for their survival. Led by radio legend Karmazin — he built Infinity Broadcasting into a broadcasting powerhouse before selling it to CBS in 1996 for $3.9 billion; and sold CBS to Viacom in 1999 for $36 billion — Sirius was expected to expand its programming and its reach, placing satellite radios in cars and homes across the country.

The two argued that the merger was needed because they were both hemorrhaging cash as they paid top dollar for programming — Sirius signed shock-jock Howard Stern $100 million long-term deal to jump from conventional radio — and struggled to convince automakers to place their product in new vehicles.

But some critics say that the government approval process took too long and coupled with the disintegration of the auto industry Sirius was never able to right itself. The stock fell 96% in 2008 (from $3.08 per share to 12 cents each) and is down almost 50% this year, amid speculation that the company may be forced into bankruptcy. Sirius stock closed at 7 cents per share on Feb. 12, up 1 cent each.

Just what has piqued Ergen's interest in the satellite-radio business remains to be seen. It is unclear whether the government would allow him to use Sirius's spectrum for anything but radio services. And Ergen's own fortunes have waned — Dish Network's stock plunged 66.5% in 2008 after the No. 2 satellite-TV service provider reported its first ever subscriber losses. At EchoStar, the Ergen-controlled firm which owns the satellites that deliver Dish Network programming, the picture isn't much better.

EchoStar stock fell 54% in 2008 from $32.59 per share to $14.87 per share. So far this year, the stock has risen 9% from $14.45 per share to $15.75 each.