SiriusXM Shareholder Suit Has Little Merit

| August 23, 2012

By Steven J. J. Weisman
TALKERS MAGAZINE
Legal Editor

BOSTON — A few days after Liberty Media Corp. and its chairman, John Malone, announced in an August 17 filing with the Federal Communications Commission that it intended to purchase stock in Sirius XM Radio Inc. sufficient to increase its interest from its present 48% ownership to more than 50% and thereby take over control of the company, the Miami Police Relief and Pension  fund filed a lawsuit against Sirius XM Radio Inc.’s board of directors for failing to take action to prevent the potential takeover.

The basis for the lawsuit is the allegation that by failing to do more to prevent Liberty Media Corp. from taking over control of Sirius XM Radio Inc., the directors were breaching their fiduciary duty to the stockholders.

The lawsuit has two chances of success – little and none.

Liberty Media, Corp. obtained its 48% ownership stake in Sirius XM Radio Inc. in 2009 in return for a loan of $530 million which saved the company from having to file for bankruptcy protection.  At the time of the loan and without a lot of bargaining power, the directors of Sirius XM Radio, Inc. agreed, among other conditions, that Liberty would have seats on the board of directors of Sirius XM Radio, Inc. in proportion to its level of stock ownership and, most importantly, that Liberty Media Corp. was prevented from increasing its stake in the company to more than 49.9% for three years.  At the end of those three years, Liberty Media Corp. was free to increase its ownership to more than 50%.  The three-year period has ended and Liberty Media Corp., to no one’s surprise except perhaps the police pension fund, Liberty is attempting to do as it always has intended, increase its ownership of the company.

Cases of breach of fiduciary duty against directors, particularly without allegations of serious conflicts of interest are exceedingly difficult to win.

In this case, were the board of directors of Sirius XM Radio, Inc. to take action, as requested by the police pension fund, in violation of Sirius’ loan agreement with Liberty Media, Inc., to make it more difficult for Liberty Media Inc. to purchase sufficient shares to gain control of Sirius XM Radio, Inc., it would appear to be a breach of contract for which the Sirius XM Radio Inc. could be liable.

Additionally, it would seem that the Miami Police Relief and Pension fund would also have to prove that they are somehow harmed by the actions of Liberty Media Corp. which is certainly not clear.

Ultimately, the Miami police might be better off trying to catch the bad guys on the streets of Miami rather than filing baseless lawsuits in the courts of Delaware.

 

Steven J.J. Weisman, a practicing attorney, is a senior partner in the talent management firm Harrison Strategies, LLC. He is also legal editor for TALKERS magazine. He can be e-mailed at: stevenjjweisman@aol.com.

Category: Legal