Billionaire John Malone unfairly used an investment agreement to acquire control of Sirius XM Radio (SIRI:US) Inc. without paying a takeover premium or allowing investors to vote on the deal, a lawyer for shareholders said.
Malone’s Liberty Media Corp. (LMCA:US) structured a $530 million investment in the satellite-radio provider in 2009 in a way that opened the door for the takeover without paying for any more for that right, Mark Lebovitch, an attorney for some Sirius shareholders, told a Delaware judge today.
“Malone wanted to enjoy all the economic benefits of being a controlling shareholder without having any of the responsibilities,” Lebovitch told Delaware Chancery Court Judge Leo Strine at a hearing in Wilmington. Strine said he will rule later on whether the investors’ claims should proceed.
Liberty officials, who took control of Sirius in January, are pushing the broadcaster beyond radio into telematics, which connects cars with wireless technology.
Sirius in July announced a partnership with AT&T Inc. (T:US) to connect Nissan Motor Co. (7201) autos in North America with roadside assistance and stolen-vehicle tracking. This month, Sirius agreed to buy the connected-vehicle services business of Agero Inc. for $530 million.
Lawyers for ex-Sirius directors and Liberty executives say that shareholders’ claims are barred because they focus on the 2009 agreement in which Sirius directors bargained away the right to erect defenses against Malone’s takeover in exchange for the cash infusion.
“The time to assert these claims has come and gone,” Donald Wolfe, an attorney for Englewood, Colorado-based Liberty Media, told Strine today.
Malone’s Liberty Media gained majority control of Sirius in January after purchasing 50 million shares of the radio operator and getting regulatory approval for the deal.
Liberty Media 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 a range of 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 have increased more than 22-fold from 16 cents on Feb. 17, 2009, when the loan was announced, to $3.56 yesterday. The shares rose 2 cents to $3.58 at 1:34 p.m. today in Nasdaq Stock Market composite trading.
Under the investment-agreement’s terms, Malone promised not to acquire a controlling interest in Sirius for three years in exchange for directors agreeing not to forgo anti-takeover defenses, lawyers for the City of Miami Police Relief and Pension Fund said in court filings. The fund invested in Sirius shares.
Once that period expired, Sirius directors argued they still couldn’t put defensive measures in place based on the investment-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, Lebovitch said in the filings.
“Sirius’s financial difficulties in 2009 did not make it acceptable for the board to pass control to Liberty without giving Sirius shareholders notice of that critical event or a chance to vote on it,” he said in a April 19 filing.
Malone, who served on Sirius’s board, also had legal duties to investors, especially after indicating in 2012 he intended to become the company’s majority stockholder, Lebovitch told Strine today. That meant it wasn’t fair for him to acquire the company without paying a takeover premium or putting that matter up for a shareholder vote, he said.
“You’re are complaining about the guy going into the public markets and buying a majority?” Strine asked the shareholders’ lawyer. He said the investment agreement specifically allowed Malone to do so after a three-year “standstill” pact expired in 2012.
Lawyers for directors and the companies contend Sirius was considering seeking bankruptcy protection when Malone offered the $530 million bailout and the board knew the agreement may mean shareholders wouldn’t get a takeover premium in the event of a buyout.
Sirius officials disclosed that prospect in a March 2009 filing with the U.S. Securities and Exchange Commission, the company’s lawyers said in a March 13 filing.
Sirius directors initially opposed Malone’s efforts to get regulatory approval to take control of the company’s satellite licenses. The investment contract barred them from taking any other steps, Raymond DiCamillo, a lawyer representing directors, told Strine today. “The board didn’t sit by and do nothing,” he said.
The case is In re Sirius XM Shareholder Litigation, 7800, Delaware Chancery Court (Wilmington).
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