Del. Judge Tosses Latest Sirius XM Shareholder Lawsuit
Over the past five years, Sirius XM Radio Inc. has gone through a major merger, a near-bankruptcy and a creeping takeover by Liberty Media Corp. If you think that sounds like a recipe for shareholder litigation, you're absolutely correct. But with help from Bruce Angiolillo of Simpson Thacher & Bartlett, Sirius XM has managed to put another shareholder challenge to rest.
The latest defense victory came Friday in a Delaware Chancery Court shareholder class action alleging that Sirius XM's board improperly allowed Liberty Media to amass a controlling stake in the satellite radio company in 2012. Chancellor Leo Strine Jr. threw out the suit, dismissing breach of fiduciary duty claims brought by Sirius XM shareholders against Sirius, Liberty and their respective directors.
Strine tossed the claims on statute of limitations grounds, so he didn't reach the merits of the case. But he certainly appeared skeptical of the notion that the companies betrayed shareholders, writing that the plaintiffs are trying to "have all of the upside but none of the downside that comes with real world commercial transactions."
Angiolillo and Paul Gluckow of Simpson Thacher represented Sirius along with a Richard Layton & Finger team led by Raymond DiCamillo. Frederick McGrath, Richard Harper and Renee Wilm of Baker Botts represented Liberty along with Donald Wolfe Jr. and other attorneys at Potter Anderson & Corroon.
In early 2009, less than one year after the merger between Sirius and XM Satellite Radio that created Sirius XM, the company was teetering on the edge of bankruptcy. To avoid Chapter 11, Sirius XM struck an investment agreement with Liberty, which is owned by billionaire John Malone. Sirius XM got a $530 million cash infusion, and in exchange Liberty got a 40 percent stake in the company, as well as the right to take a controlling interest in Sirius XM after a three-year period without paying a premium. Under the terms of the investment agreement, Sirius' board was prohibited from using a poison pill to block Liberty from exercising its option to purchase additional shares.
When the three-year standstill period expired in 2012, Sirius' stock price had improved, so Liberty announced its intention to go through with the takeover. Three plaintiffs firms—Grant & Eisenhofer; Chimicles & Tikellis; and Bernstein Litowitz Berger & Grossmann—sued on behalf of Sirius shareholders in August 2012, alleging that Sirius XM's board fell down on its duties by failing to stop the takeover. Malone and other Liberty directors were also named as defendants.
Strine wasn't having it. The plaintiffs' case was a stretch, he concluded, and anyway its time had come and gone. "The plaintiffs may not sue at this late date, especially given the undisputed reality that Liberty Media put $530 million at risk for over three years by investing in Sirius, in reliance on the contractual consideration it received in return," Strine wrote.
"The board's inability to block Liberty Media's so-called 'creeping takeover' was merely the manifestation of the bargain struck between Sirius and Liberty Media in 2009," Strine wrote. "Thus, although artfully repackaged, this is still an attack on the terms of the Investment Agreement that the board negotiated in 2009."
Stuart Grant of Grant & Eisenhofer, a lawyer for the proposed shareholder class, said he had no comment on the ruling. Sirius XM counsel Angiolillo also declined to comment.
Angiolillo also represented Sirius XM in shareholder litigation over its 2008 merger. In 2012, a federal judge in Manhattan dismissed claims that Sirius and XM lied to antitrust regulators to gain approval for the deal.