Sirius XM chief executive Mel Karmazin is praying that his company survives a possible bankruptcy filing and can fight takeover efforts from EchoStar.  (Source: OrbitCast)

A possible bankruptcy filing by Sirius XM radio could send high profile broadcaster like Howard Stern out on the streets looking for a new job.  (Source: Delaware Online)
Satellite radio may be latest victim of economy; bankruptcy would likely force high profile stars to be cut

Ever since Sirius and XM Radio merged to form Sirius XM last summer thanks to federal approval, the pair has been talking big and dreaming of a bright future together.  However, thanks to a slumping economy, its future is looking rocky and the company is preparing for a possible bankruptcy.

Just months ago the outlook was much better.  Headed by chief executive Mel Karmazin, the pair was cutting close to $400M USD in costs while enjoying a growing subscriber base of millions.  Their chief lauded the affordability of their service, stating, "Forty-three cents a day — it’s not even vending machine coffee."

Sources are stating that the company is hiring bankruptcy advisors as it braces itself to try to weather the storm.

For customers, their service as a whole would likely not be terminated by a bankruptcy say experts.  However, popular high profile broadcasters like Howard Stern and Martha Stewart would likely have to be cut, something which might cause a spiral of even more canceled subscriptions.  Capital IQ states that if the company indeed files, with $5B USD in assets it would be the second largest Chapter 11 filing of the year, second only to the filing of Smurfit-Stone, which had $7B USD in assets.

Part of Sirius XM's misfortune is thanks to slumping auto sales.  The company relied heavily on new cars for new subscriptions.  Of its 20 million subscribers, recently purchased vehicles accounted for the largest percentage.  Many vehicles come with short term packages, thanks to deals with automakers.  However, many of those subscriptions will expire and not be renewed and with few new vehicles sold, that means the company may see a drop in total subscriptions.

Furthermore, it owes $175M USD in debt payments to creditors, which are due at the end of February.  Unless the company conjures up some money out of thin air, a bankruptcy filing seems likely. 

Another possibility is that EchoStar, the TV satellite company which has bought up Sirius XM’s debt, may try to take over the company.  EchoStar’s chief executive, Charles W. Ergen, is reportedly trying to convince Sirius XM to accept a takeover, but Mel Karmazin is resisting these efforts.  Instead, Sirius XM hired Joseph A. Bondi of Alvarez & Marsal and Mark J. Thompson, a bankruptcy lawyer with Simpson, Thacher & Bartlett to prepare a Chapter 11 filing.

A filing could come within days, say sources.  However, some believe that the filing is Mr. Karmazin's attempt to play financial hardball with EchoStar and milk a better deal out of them, possibly to convert the debt to equity, to avoid repayment.  Sirius XM also owes EchoStar $400M USD in debt, due in December.

If Sirius XM files bankruptcy, EchoStar can try to take it to court to win a takeover.  Another possibility is Mr. Ergen could convert his shares before bankruptcy to gain a controlling interest and secure a hostile takeover of the company.

Mr. Karmazin has much to lose, as he spent over $100M USD on Sirius XM stock (since devalued to around $2M USD).  He said in December, "I’m not trying to paint the rosy picture, because we have challenges connected to our liquidity and certainly our stock price is dreadful.  But, you know, our revenues are growing double digits. We’re growing subscribers. We’re not losing subscribers."

If Sirius XM indeed folds or is taken over, satellite radio will be left in a quandary, with its two former greatest members greatly diminished.  With no clear challenger in sight, it appears that satellite radio may become the latest victim of the poor economy.

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