Liberty Petition to FCC Outlines Play for Sirius XM De Facto Control

In its reconsideration petition, Liberty urged the FCC to review its dismissal of its initial applications for de facto control. The petition notes the actions it plans to take to show its intent to gain that control. The company intends to convert nearly half of its preferred stock in Sirius to shares of common stock, which will give it more than 32 percent of the total outstanding shares of common stock, Liberty said. It also plans to nominate more of its representatives to serve on Sirius’s board so that “persons nominated by the reporting person will constitute a majority of such Board of Directors.” Liberty said it may purchase sufficient additional shares of common stock “that would enable it to replace the entire Board of Directors by unilateral action."

Liberty previously expressly stated in applications submitted with its original request to the FCC that they were made under requirements of the Communications Act “by obtaining commission consent prior to taking any action to assert control over Sirius,” the new recon petition said. The company included in the petition actions it plans to take “to eliminate any doubt as to its intentions with respect to asserting control over Sirius,” it said. Liberty also noted that it will amend its applications to seek de jure control of Sirius if it acquires sufficient additional common stock and the FCC hasn’t granted it de facto control.

Following Liberty’s purchase of more than 60 million shares of Sirius stock in May, industry analysts and lawyers said Liberty could make clear to the FCC that it’s taking steps to show an intent to obtain a transfer of control (CD May 11 p6). Filing this petition before submitting a new application is likely an effort to cover all the bases rather than a significant step in the process, said Jeff Silva, Medley Global Advisors analyst. Although rulings can be modified under reconsideration, “the burden is very high on a petitioning party to overturn an FCC ruling,” he said. The commission would make a decision based on those new set of facts and circumstances, he added.

Sirius said Liberty didn’t provide it with any notice with respect to its plans for the board of directors. An action to remove and replace the entire board of directors “would require the consent of a majority of our outstanding common stock,” Sirius told shareholders in an SEC filing (http://xrl.us/bm9yqt). It said the companies have engaged in discussions around ownership, but “we have not reached agreement with respect to a specific transaction that would be mutually beneficial to both our common and preferred stockholders.”

The move looks like more of the same from Liberty “in continuing their attempt to take control without paying a premium to buy out Sirius’s other shareholders,” said Tim Farrar, an independent satellite analyst. Liberty is showing a desire to “resolve these issues relatively quickly rather than let this drag on,” he said. “How quickly the whole thing is brought to a conclusion is more difficult to determine.” It depends on “how much of the board is up for election and when,” he said.

Petitioning for recon of May’s FCC dismissal could help Liberty going forward if a legal battle ensues, Silva said. It frees Liberty to take the next step if the company goes to court, he said. “If you had any inkling that the FCC was wrong, a court will want you to exhaust your administrative remedies before taking it to them.”