Following Bankruptcy Rumors, Ergen Offers To Takeover Sirius XM (SIRI)

The Wall Street Journal reported that Charles Ergen has offered to restructure Sirius XM Radio (Nasdaq: SIRI) debt and inject several hundred million dollars of capital into the company in return for control of the company

Ergen's plan doesn't call for buying out existing shareholders, something many investors had been hoping for.

Sirius rejected Ergen's offer late last year, but the paper said it still remains on the table. While the two sides are in discussions, Sirius XM has given no indication that it is prepared to accept the deal.

Yet, other than filing for bankruptcy or dealing with Ergen, Sirius does not really have any other options. If Sirius is unable to raise approximately $175 million by February 17 to repay bonds held by EchoStar Corp (Nasdaq: SATS) controlled by Ergen, Sirius will likely be forced into bankruptcy. In addition to the February bonds, EchoStar controls a $400 million tranche of Sirius debt that expires in December.

A bankruptcy filing would wipe out Sirius's equity shareholders. Sirius's board would likely expose themselves to litigation if they filed for bankruptcy and ignored an offer that is on the table from Ergen, which would preserve some of the investors' equity. Some people say that Sirius' CEO, Mel Karmazin, does not want to give up control to Ergen.

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