Sirius and Liberty, perfect together?

Sirius XM Satellite Radio Inc. (NASDAQ: SIRI) Chief Executive Mel Karmazin has escaped the hangman's noose -- for now.

The money-losing home of Howard Stern, Opie & Anthony and the NFL got a $530 million investment from John Malone's Liberty Media Corp. (NASDAQ: LCAPA) that will keep Sirius XM out of bankruptcy. Shares of the New York-based company are soaring.

Malone is demanding a steep price in exchange for bailing out Sirius XM. Liberty will provide a senior secured loan of $280 million which matures in 2012 at an interest rate of 15 percent. Sirius XM, though, may have had little choice but to accept such a high interest rate because it had $171.6 million of its maturing 2 1/2 percent notes due Feb 17. Even with today's huge run up, Sirius shares are down more than 94 percent over the past year.

In the second phase of the investment, Liberty will provide a $150 million loan and to buy $100 million in loans issued to XM Satellite Radio. The company will then issue Liberty 12.5 million shares of preferred stock which is convertible into 40 percent of the common equity. Malone and Liberty CEO Greg Maffei will join the board of the satellite radio company.

"It's an expensive business to run," said Larry Rosin, co-founder of Edison Research, which follows the media industry, in an interview. "Like any new technology, they got trapped by their debt."

The investment raises plenty of questions. Will Karmazin and Malone -- neither of whom suffer from low self-esteem -- be able to work together? Karmazin left Viacom Inc. (NYSE: VIA) after feuding with Sumner Redstone. Malone's spat with IAC/InterActiveCorp (NASDAQ:IACI) honcho had to be settled in court. Rosin argues that Karmazin is "clearly a brilliant businessman" but that Sirius XM could survive without him,

For now, investors' worries about satellite radio becoming this decade's answer to the 8-track tape deck appear to have been temporarily allayed. For all of its problems, Sirius Satellite Radio continues to offer many attractions, according to Rosin For instance, putting satellite radio and satellite TV together (Malone also controls DirecTV Group Inc. (NASDAQ: DTV) makes sense.

"If they merged the companies there definitely would be savings" from combining their back office functions, Rosin said in an interview. "These companies are already working together."

Satellite radio also got hurt by record declines in new car sales. Still, there are about 19 million subscribers to Sirius and XM. That's an audience that remains of interest to advertisers.

"Many of their customers are wildly loyal to it, love it to pieces," he said.
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