MALONE'S LIBERTY MEDIA BAILS OUT SIRIUS XM, KARMAZIN

Working through the night, the nation’s lone satellite radio provider and the parent company of the #1 satellite TV operation finally got in bed together this morning, as John Malone's Liberty Media agreed to invest as much as $530 million in the battered company, allowing it to avoid a Chapter 11 bankruptcy filing.

Liberty will loan Sirius XM $280 million—$250 million of which will be funded immediately, MarketWatch reports. Sirius XM will use some of the proceeds of that loan to pay $171.6 million of the $175 million in 2.5% convertible notes that are due at the end of business Tuesday. Liberty's loan to Sirius XM will bear interest at a rate of 15%, and will be due in December 2012.

In the second phase of the deal, Liberty will loan another $150 million to XM. Liberty has also agreed to offer to buy up to $100 million of the loans outstanding under XM's existing debt agreements.

Because the loans don’t constitute a change in the control of Sirius XM, they’re are not subject to FCC approval.

In return, Liberty will get 12.5 million shares of preferred stock, which is convertible into 40% of the company's common stock. Malone and his CEO John Maffei would then join Sirius XM's board of directors.

With the deal closed, Malone has emerged as the winner in yet another competition with media baron Charles Ergen, the owner of Dish Network and EchoStar (see yesterday’s story)—a competition that has left a lot of people scratching their heads as the stock plummeted toward worthlessness.

But according to WSJ reporter Matthew Karnitschnig, Malone and Ergen may see some of the same advantages in Sirius XM. They seem to be looking to outmaneuver each other and get a head start in offering movies, TV shows and other video entertainment to an array of cellphones and mobile devices via satellite and ground-based signals.

Maffei said Liberty has been "impressed" with Sirius XM, and that its "ability to grow subscribers and revenue in a difficult financial and auto market is indicative of how listeners view this as a 'must have' service."

Still standing, then, is embattled CEO Mel Karmazin, who’s been bracing himself for an investor revolt because he failed to secure monies that would have prevented the present crisis when finances were still available last summer. Karmazin said in a statement that the deal enables his company to "develop the opportunities first outlined in the merger of Sirius and XM."

Ergen had been seeking outright control in return for a roughly $500 million investment and an agreement to restructure about $400 million in Sirius debt that he holds. Unlike Liberty, which has presented itself as a "white knight," Ergen's approach has been more aggressive, Karnitschnig pointed out. Ergen began amassing Sirius debt last fall as part of a stealth attack.

Earlier this month, he acquired the $175 million in Sirius debt that expires today, a step he was hoping would force the company into a deal with him. Ergen and Sirius cleared most obstacles to a deal last week, according to people in both camps. But Sirius preferred a deal that wouldn't give an investor full control and turned to Liberty.

It's probably too soon to count Ergen out altogether, Karnitschnig speculates. He still holds about $225 million in Sirius bonds that mature in December and could try to acquire more of the company's $3.25 billion in outstanding debt.

Malone’s empire includes stakes in satellite broadcasters, Web properties and cable channels, such as QVC and the Atlanta Braves.

Shares of Sirius XM nearly doubled on the news, jumping 7 cents to 18 cents, a gain of 71%, in mid-morning trading.