Malone’s Push for Sirius Control Sets Up Karmazin Clash

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Liberty Media Corp.'s John Malone
John Malone, chairman of Liberty Media Corp. Photographer: Matthew Staver/Bloomberg

Billionaire John Malone’s push to take over Sirius XM Radio Inc. is setting up a potential clash with Sirius Chief Executive Officer Mel Karmazin, who stands to lose power under the deal.

Malone’s Liberty Media Corp. plans to assert control of the largest U.S. satellite radio provider after receiving approval from the Federal Communications Commission, the Englewood, Colorado-based company said yesterday in a filing. The move would put Karmazin, who helped turn around Sirius after years of losses, under the command of Malone and Liberty CEO Greg Maffei.

“I could see a situation where there could be conflicting personalities,” Brett Harriss, an analyst at Gabelli & Co. in Rye, New York, said in an interview. “These are two high-powered guys in Mel and John.”

Maffei said today on CNBC that there was no plan to remove Karmazin as the head of Sirius.

“We like Mel,” he said. “We want him to be CEO.”

Patrick Reilly, a Sirius spokesman, declined to comment. Courtnee Ulrich, a Liberty spokeswoman, didn’t respond to a telephone call and e-mail.

Liberty, the holder of interests in businesses ranging from cable programmer Starz LLC to the Atlanta Braves baseball team, has asked the FCC to reconsider the agency’s May 4 dismissal of its application for permission to take control of Sirius.

Spinoff Plan?

Liberty’s move has fueled speculation that Malone, 71, wants to spin off his stake in New York-based Sirius. Liberty will probably execute a so-called Reverse Morris Trust, which involves splitting off its Sirius stake as a separate entity and giving its stockholders the option to hold or sell their Sirius shares, according to James Ratcliffe, an analyst at Barclays Capital Inc. in New York.

To execute the spinoff, Liberty must have Sirius’s board approval. Sirius is in talks with Liberty about the company’s ownership interest, according to a separate filing by Sirius. It said Sirius doesn’t expect to disclose developments in the discussions.

The New York Post reported today that Maffei may want to run the satellite broadcaster directly, leading Karmazin to leave after the Sirius CEO’s contract expires on Dec. 31. Maffei is tired of being a portfolio manager for a broad swath of companies, the Post reported, citing a person familiar with the matter.

Maffei denied that report today on CNBC. “The New York Post story is wrong,” he said.

Stock Drop

Sirius shares declined 2.7 percent to $1.84 at the close in New York. The stock has slid 19 percent since Liberty filed its application with the FCC on March 20. Liberty shares, up 5.5 percent this year, fell 2.9 percent to $82.34.

Liberty would also have the right to change management at the company if it gains control of the board. Still, Malone may not want to remove Karmazin, who has engineered a comeback at Sirius, said Harriss, who has a hold rating on Sirius shares. The company was profitable in 2010 and 2011 following more than a decade of annual losses, according to data compiled by Bloomberg.

Karmazin, 68, served as Sirius Satellite Radio’s CEO before its 2008 merger with XM Satellite Radio, when he took control of the combined company. He was previously president and chief operating officer at Viacom Inc. Karmazin clashed with Viacom Chairman Sumner Redstone because he couldn’t get the top job at the media giant. Before that, he ran CBS Corp. until 2000.

‘Good Job’

“All the comments that Liberty has made toward Mel have been positive, and Mel’s done a good job increasing the company’s profitability,” Harriss said.

The Sirius-XM merger four years ago was an all-stock deal valued at $2.76 billion. The companies, which had more than 18.5 million subscribers at the time, overcame opposition from traditional radio broadcasters and some consumer groups that said a combination would create a harmful monopoly.

Even after the deal, the company struggled with high programming costs and slowing subscriber growth. Malone, Liberty’s chairman, saved Sirius from bankruptcy in 2009 with a $530 million loan. Liberty boosted its stake in Sirius to 46.2 percent from 40 percent last month.

Liberty’s interest in a Reverse Morris Trust is to save on capital gains taxes, Harriss said. Distributing Sirius shares to Liberty stockholders through a spinoff instead of selling them on the open market lets the company avoid paying taxes on the sale, he said.

Defective Application

The FCC said on May 4 that Liberty’s application was defective because the company couldn’t get passwords and signatures from Sirius. Liberty’s application didn’t show it intends to take control, the FCC said.

“The FCC’s recent rejection of the application was procedural, and I doubt it reflects anything about the substance of Liberty’s argument,” Paul Gallant, a Washington-based analyst with Guggenheim Partners, said in an interview.

Liberty responded to the agency’s arguments in a recent filing. The company “has determined that it should assert control of Sirius and will take action to do so,” Liberty said.

It said the FCC’s May 4 decision improperly delegates to Sirius the authority to determine whether Liberty gains control.

The company needs FCC approval to complete a takeover because Sirius holds airwave licenses issued by the agency, Liberty said.

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