It’s looking like the merger didn’t solve all the problems in the satellite radio business:
Sirius XM Satellite Radio has been working with advisers to prepare for a possible bankruptcy filing in a move that could put pressure on the satellite company EchoStar, which owns a substantial amount of the company’s debt.
Sirius has been working with the restructuring expert Joseph A. Bondi of Alvarez & Marsal and the bankruptcy lawyer Mark Thompson of Simpson, Thatcher & Bartlett to help prepare a Chapter 11 filing, people close to the company said. The documents and analysis are close to being completed and a filing could come within days, according to a person familiar with the matter.
Sirius, whose radio stars include the popular shock jock Howard Stern, has also been working with the investment bank Evercore Partners.
Charles Ergen, who controls a satellite-television empire including the Dish Network Corporation and EchoStar, recently acquired the majority of a $300 million tranche of Sirius debt that matures next Tuesday.
Since the news about the debt purchase has emerged, questions have surfaced over whether Mr. Ergen will make a bid to purchase Sirius. The threat of a possible bankruptcy filing could force Mr. Ergen to make a formal offer for the company now if he doesn’t want to go through an auction in bankruptcy court.
It could also compel Mr. Ergen to agree to convert his debt into an ownership stake in Sirius at a higher price than he originally considered.
While this looks like a normal defensive move against a hostile takeover, nothing is normal in today’s era, and Sirius XM was recently named as one of 15 companies that might not survive 2009:
Sirius Satellite Radio. (SIRI – parent company; about 1,000 employees; stock down 96%). The music rocks, but satellite radio has yet to be profitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parent company Sirius XM, which was formed when Sirius and XM merged last year. So far, the merger hasn’t generated the savings needed to make the company profitable, and Moody’s thinks there’s a “high likelihood” that Sirius will fail to repay or refinance its debt in 2009. One outcome could be a takeover, at distressed prices, by other firms active in the satellite business.