Sirius XM Radio Inc. investors can’t proceed with a lawsuit claiming company directors let billionaire John Malone’s Liberty Media Corp. take control of the satellite-radio provider without paying a premium or holding a shareholder vote on the deal, a judge ruled.
Delaware Chancery Court Judge Leo Strine rejected allegations today that Sirius’s board improperly allowed Liberty Media officials to engineer a takeover of the broadcaster in 2009 in exchange for a $530 million loan to keep then-struggling company out of bankruptcy. Investors waited too long to challenge the directors decision to enter the loan agreement that gave Malone a chance to buy the company, the judge added.
Sirius shareholders aren’t entitled to “sit on the sidelines benefitting from the investment Liberty Media made in Sirius until after the statute of limitations expires and then belatedly seek to deprive Liberty Media of the benefits of the contract it received in exchange,” Strine said in throwing out the suit.
The ruling comes as Sirius officials push the company beyond radio into telematics, which connects cars with wireless technology. In July, Sirius announced a partnership with AT&T Inc. that connects Nissan Motor Co. autos in North America with roadside assistance and stolen-vehicle tracking.
Courtnee Ulrich, a Liberty Media spokeswoman, didn’t immediately return a call seeking comment on Stine’s decision.
Liberty Media gained majority control of Sirius in January after buying 50 million shares of the radio operator and getting regulatory approval for the deal.
Liberty Media, based in Englewood, Colorado, plans to spin off its Sirius stake, Malone said in 2012. Malone gained a 40 percent equity stake in the satellite broadcaster as part of the 2009 loan deal.
Liberty Media is a holding company with investments including stakes in the cable TV programmer Starz LLC and Major League Baseball’s Atlanta Braves. Several Sirius directors, including former Chief Executive Officer Mel Karmazin, left after the takeover.
Sirius shareholders lost a bid to have Strine issue an injunction blocking Malone from acquiring the satellite broadcaster last year.
Liberty wound up making billions of dollars on the deal as Sirius shares increased more than 20-fold from 16 cents on Feb. 17, 2009, when the loan was announced, to $3.92 today.
Under the terms of the loan, Malone promised not to acquire a controlling interest in Sirius for three years in exchange for directors agreeing not to set up anti-takeover defenses, lawyers for the City of Miami Police Relief and Pension Fund said in court filings. The fund invested in Sirius shares and sued over the deal.
Once that period expired, Sirius directors argued they still couldn’t put defensive measures in place based on the loan agreement’s terms and Malone was able to buying a controlling interest in the satellite broadcaster without submitting the acquisition to a shareholder vote or paying a takeover premium.
Strine concluded Sirius investors should have immediately challenged the board’s decision to agree to the loan terms and company directors were correct in considering themselves barred from erecting anti-takeover defenses by the pact.
The case is In RE Sirius XM Shareholder Litigation, CA No. 7800, Delaware Chancery Court (Wilmington).