What Liberty Really Loves About Sirius: Tax Losses


Did John Malone save Sirius XM (SIRI) because he’s psyched to get into the satellite radio business?  Unlikely.  More likely, he likes the idea of lending out $530 million to get $2 billion back even if Sirius’s stock never recovers and the company never makes a dime.

Matthew Karnitschnig and Jesse Drucker in the Wall Street Journal:

Sirius XM has at least $6 billion of tax losses, according to securities filings. That means that the losses it has accumulated over the years can be used as deductions to cut taxes on future profits. As long as those losses stay with Sirius, they have little value, securities filings show, because the company’s future prospects for significant profits are still slim.

But in the eventual hands of another company, like Mr. Malone’s Liberty Media Corp., those tax losses could become extremely valuable, helping to wipe more than $6 billion in taxable income off of its income tax returns — thus some day cutting Liberty’s corporate income-tax bill by more than $2 billion.

Tax concerns are often a big driver of corporate deal making, but few players manoeuvre through the tax code as thoroughly as Mr. Malone. In 2006, he acquired the Atlanta Braves in a way that enabled Liberty to effectively cash out its stake in Time Warner without incurring taxes.

Similarly, Sirius’s tax losses are considered a key part of the company’s appeal to Liberty, according to people familiar with the matter. They were considered less significant to Mr. Ergen, who bought up Sirius debt in hopes of adding Sirius to his strategic arsenal of satellite assets. On Tuesday, Liberty announced it would rescue the company from a bankruptcy filing with a $530 million loan. Liberty will receive a 40% stake in Sirius.

There are some catches here.  To use the NOLs (net operating losses), Sirius can’t undergo a full change in control for three years.  So Malone has to bide his time with his 40% for three years before scarfing up the rest of the company.

More details on the use of the NOLs here >