CEO Reaches Out To New Investors To Save Sirius XM

Sirius XM chief executive Mel Karmazin is reaching out to potential investors. His company has $175 million in debt due Tuesday, and $350 million more due in May. The company has begun to fill out paperwork in the event it needs to seek bankruptcy protection for the satellite radio operator that hosts shock jock Howard Stern.

But Karmazin's options may be limited.

Any purchase of the nation's only satellite radio provider would face regulatory scrutiny, analysts said. And in light of the protracted 18-month review of the merger between XM and Sirius by the Federal Communications Commission and the Justice Department, few investors may want to take on the burden.

According to a source familiar with the matter, Karmazin has been in talks with EchoStar satellite service mogul Charles Ergen, hoping to strike a deal.

Analysts say Sirius's satellite radio service would complement Ergen's satellite television service Dish Network. Some have speculated Ergen may be interested in adding Sirius's spectrum to radio waves it bought in an auction early last year to build out a wireless high-speed Internet network.

Such plans would face resistance from Karmazin, according to the source, and would likely be fought by the FCC. The agency would have to review how the purchase would affect Sirius subscribers. Any investor would likely have to agree to not increase prices and to add more minority programming -- promises the New York-based Sirius had to make when it merged with the District-based XM last year, analysts said.

If an investor wanted to strip Sirius of its radio service and use its spectrum for other purposes, the obstacles could be even harder to surmount.

"The FCC's unlikely to authorize a repurposing of spectrum that would disenfranchise 19 million satellite users," Barclays Capital analyst Vijay Jayant wrote in a research report.

Sirius and XM executives poured millions of dollars into lobbying the FCC and the Justice Department to agree to their union, which was fought by the National Association of Broadcasters and consumer groups who said it would create a monopoly in the satellite radio market.

The Justice Department approved the merger last February after deciding that the combined company would not hamper competition. The FCC approved the merger months later, with the agency's three Republican members voting for it and the two Democrats voting against the deal.

Analysts said the long process distracted managers from merging operations and finding ways to cut costs of the combined company. At the same time the economy was sinking and consumers were cutting back on purchases of cars and electronics. Sirius' main source of revenue comes from new cars equipped with satellite radios.

"Whatever you thought about the wisdom of the final decision, it clearly took a terribly long time to make," said Rebecca Arbogast, an analyst at Stifel Nicolaus. "It is hard to keep your eyes on the prize when you are not sure what your future is."

Kevin J. Martin, who was chairman of the FCC at the time, defended the agency's lengthy proceedings, saying the merger was extraordinary in that it called for the agency to overturn rules that blocked a merger between the two firms. He added that the company had acted slowly to correct violations of wireless tower use.

"This was not a normal transaction," Martin said in an interview. "They asked us to change our rules that explicitly prohibited the merger."