Liberty Plows Ahead with More Sirius Stock in Effort to Obtain De Facto Control
Acquiring more shares of Sirius XM could help Liberty Media make a better case to the FCC for its intent and refile a new application seeking a de facto transfer of control, attorneys and analysts told us. Liberty Media acquired about 60.3 million shares of stock in Sirius XM as it tries to obtain de facto control. Liberty bought the stock Tuesday and Wednesday, according to an SEC filing (http://xrl.us/bm64cp). The purchase follows Liberty CEO Greg Maffei saying Tuesday that the company will seek a review of the FCC’s dismissal of its application for de facto control over Sirius (CD May 9 p6).
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Unless the parties reach an agreement, “it’s going to take some time to get this resolved,” said Lew Paper, Pillsbury Winthrop communications lawyer. If Sirius continues to object, “my guess is it’s not going to happen overnight because there'll be a series of proceedings back and forth,” he said. The more pleadings filed with the agency, the longer it will take the FCC to make a decision, Paper added.
Liberty Media could make clear its intention to take de facto control, lawyers including Paper and an analyst said. The International Bureau said last week (CD May 7 p12) that information in Liberty’s applications wasn’t sufficient to establish that Liberty intends to take action (http://xrl.us/bm6abg). “Now Liberty can do that,” Paper said. What’s missing is an explicit statement from Liberty about wanting to gain such control, said independent satellite analyst Tim Farrar. “If they made a statement of intent, that might be sufficient to get FCC approval.” It’s difficult to know exactly which way Liberty will play it, Farrar said. Liberty is trying to avoid a large tax bill, he said: The company wants to take control so it can take advantage of the tax losses, “but they don’t want to be in a situation where they have to sell and pay taxes on the gain."
Sirius’s opposition to de facto control creates an unusual situation for the FCC, a broadcast industry lawyer said. “I believe this is the first time where they were asked by one party to determine that it has de facto control, but it’s opposed by the company itself.” Unlike de jure control, which is established at more than 50 percent of shares, determining de facto control is murky, he said: “When you have a situation that deals with de facto, there’s no clear articulated standards,” in terms of stock ownership. The commission would consider many factors, such as how much stock the company has, and what rights go with it, to determine that control, he added. Sirius “might try to oppose the application and say it’s not in the public interest,” but that will be a tough argument to make, the lawyer said. As for Sirius, “there’s not really anything they can do to definitively prevent Liberty from moving forward,” Farrar said.
The commission might waive the requirements if Liberty says it’s buying or has stock and is planning to take control, Paper said. Liberty also has the option to file a complaint in court, he said: The company can do so to enforce any contractual rights it has and try and secure some relief “to force XM to provide the information required for a new application.” Liberty also can “ask the court to have the clerk of the court approve the application,” Paper added. If Liberty can show its intent, “that would be the simplest thing to do, as opposed to going to court,” he said. “That would be more complicated, costly and time-consuming.”
It’s “a bit hard to predict the next turn in the story, but it appears that Liberty Media is very determined to assume control of Sirius,” said Jeff Silva, analyst with Medley Global Advisors. “I think Sirius is a bit under the gun to try to figure out which way or how they're going to handle efforts by Liberty to gain control.” Liberty is getting close to achieving its goal of gaining control of the satellite radio company, he added. The International Bureau had no comment on Liberty’s intention to seek a review.