LOS ANGELES (AP) — Shares in Sirius XM Radio slipped 2 percent Monday after federal regulators dismissed an application by John Malone's Liberty Media to control the company through its radio licenses.
THE SPARK: On Friday, the Federal Communications Commission dismissed Liberty's bid for "de facto control" of Sirius's earth station licenses. Liberty holds preferred shares that, if converted into common stock, would give it 40 percent of Sirius's outstanding shares, which it contends is enough for it to control the company.
Roderick Porter, deputy chief of the FCC's international bureau, and Julius Knapp, its chief engineer, called the application both "unacceptable" and "defective."
They noted Liberty Media Corp. was unable to obtain the passwords, signatures and other information necessary to file their application electronically, as required.
It also said that Liberty did not establish that it intends to take actions that would give it control, such as converting its stock or taking over the board.
THE BIG PICTURE: Liberty saved Sirius XM from near-bankruptcy in February 2009 by agreeing to lend it up to $530 million in exchange for the preferred stock.
At the time, Liberty promised not to take over the company, join shareholder voting agreements or exercise control over the board of directors or management. Portions of that agreement expired March 6. Liberty said in a filing that that is why it was now seeking control.
Liberty is stepping in just as Sirius becomes more profitable.
The company's first-quarter net income rose 38 percent to $107.8 million, according to a financial statement released Tuesday. Revenue rose 11 percent to $804.7 million and it added a net 404,596 subscribers to end the quarter with 22.3 million, 8 percent more than a year ago.
THE ANALYSIS: The struggle for control could delay a share buyback program that would boost shareholder value, but also concentrate more power in Liberty's hands.
"The Liberty and Sirius positioning through FCC filings gives the impression that we may not see movement" on share buybacks, Morgan Stanley analyst Benjamin Swinburne said in a recent note to clients.
SHARE ACTION: Shares of Sirius XM Radio Inc. fell 5 cents to $2.12 in midday trading Monday. That's down from its highest close in 52 weeks at $2.40 on April 2.