EchoStar Acquires Sirius XM Debt: WSJ

By Amy Gilroy -- TWICE, 2/5/2009

New York — EchoStar has acquired a significant amount of Sirius XM’s debt and may attempt to gain control of the satellite-radio company, according to a report in the Wall Street Journal.

EchoStar CEO Charlie Ergen recently acquired a portion of Sirius’ $300 million debt that matures on Feb. 17, the report said, citing “people familiar with the matter.”

It suggests EchoStar could pursue a strategy to use the debt to take control of the company.

EchoStar said it had no comment on the matter and Sirius did not respond to a TWICE inquiry.

Sirius XM’s stock had dipped to a low of 8 cents a share in recent weeks, down from more than $3 per share, as the company struggles to refinance a total of almost $1 billion in debt due this year in three payments, the first of which comes due this month.

Sirius XM has already reduced its debt in the first payment from more than $300 million to about $175 million, in swapping debt for equity, but it is not known if EchoStar was involved in this transaction.

Such a move to win control of Sirius XM would fit with Ergen’s goal of expanding set-top boxes beyond the home, as witnessed in EchoStar’s acquiring of Sling Media, which makes the Slingbox that lets consumers watch and control their TV programming from any location including a home PC or smartphone.

“Charlie has long had this vision of moving media that he is delivering as the middleman, from places that are static to places that are moving,” said Jimmy Schaeffler principal analyst of the Carmel Group.

“Right now EchoStar is very well-positioned in the home. It is working to become better positioned in other locations and included in these will be automobiles.” he said, noting that Ergen has worked with General Motors in the past when he attempted to buy DirecTV from GM.

EchoStar could provide Sirius with “deeper pockets and better financial wherewithal. They’d add some very important strategic thinking and an overall infrastructure. Sirius XM would no longer be its own play, but part of a bigger picture,” he said.

David Bank, analyst for RBC Capital Markets, said a recapitalization of Sirius XM would be positive for the company and for consumers. As the market stands now, it is possible that the Sirius XM could be forced into restructuring, he told MSN Money recently.

Still, he called Sirius XM’s business a viable one and said that the company will survive. He noted that more than 50 percent of cars rolling off the assembly line include Sirius XM, mainly as standard equipment, and that about 50 percent of consumers buy the service after the initial free trial. This presents opportunity for some growth even in this economy, he said.

On the retail front, Audiovox took over this month as the Sirius distributor, replacing Directed Electronics. No policy changes have yet been announced.

But Audiovox said it is working with Sirius to set up a third-party system to disperse commissions to retailers for their Sirius sales. Audiovox will then ship Sirius products but not handle retail commissions, mirroring the same arrangement it has with XM.