It's Microhoo all over again.

Yesterday's Wall Street Journal reported that satellite television mogul Charles Ergen made an offer to take control of Sirius XM Radio (NASDAQ:SIRI) late last year. He was rebuffed. Now he apparently has the mother of all bargaining chips -- the $174.6 million in debt that Sirius needs to repay this month.

It remains to be seen what Echostar’s (NASDAQ:SATS) debt-acquiring stunt will ultimately accomplish. With capital-raising sources dwindling for Sirius, it's left with little choice but to negotiate with Ergen. It can also naturally file for Chapter 11 bankruptcy protection, but that would be a bigger betrayal of its fiduciary responsibility to its shareholders.

Either way, it's not a good time to be Sirius CEO Mel Karmazin.

Karmazin and Yahoo!’s Jerry Yang have little in common personally, but the satellite radio giant's helmsman may as well see if he's the same shoe size as Yang. They're walking similar paths. They both apparently turned down unsolicited offers and have failed to increase shareholder value.

A key difference is that at least Yang's company was blessed with the cash to buy time until the shareholder revolt. Karmazin may not be so lucky.

Born Ergen
Sirius has more than $3 billion in debt, with roughly a third of that due to be repaid -- or refinanced -- this year. In other words, Sirius has a much higher enterprise value than its measly market cap would seem to suggest.

Items such as a change in ownership or the company’s taking on additional debt would trigger covenants that would cause chunks of the debt to be immediately due. Ergen knows this, of course. He also has to be fully aware that regulators aren't going to simply hand over the satellite radio monopoly to the guy behind satellite television giant DISH Network (NASDAQ:DISH). If it took the FCC a year and a half to approve the union of Sirius and XM, how much longer would it take to add a satellite television heavyweight to the mix? One can argue that letting Sirius XM die -- at least in its present form -- would be just as anticompetitive, but regulators never make life any easier for potential nibblers.

Maybe Ergen wants little more than a decent-sized stake in the company and perhaps a little boardroom muscle. Karmazin would be nuts not to consider the overture at this point, especially given the lack of feasible alternatives.

However, if Sirius makes it to March without having to kowtow to Ergen or file for bankruptcy, it will simply give other potential bidders a few months to make their own buyout efforts known. Karmazin is cornered.

Outsiders with Sirius intentions
A potential buyer can probably snap up the company in bankruptcy court for less than the company's enterprise value, as nervous creditors settle for less than they are owed. That could be a problematic strategy for two big reasons:

  • Other suitors may step up.
  • Sirius XM itself may diminish in stature, if nervous subscribers question the viability of satellite radio and cancel their accounts. Shareholders that are also listeners may unsubscribe in disgust.

The win-win solution is for Sirius XM to negotiate a friendly buyout, and that can only happen if the company is able to avoid filing for bankruptcy. Ergen is now in the way, so he clearly becomes the frontrunner here. It's just that he's not the only one with plenty to gain in a Sirius XM buyout.

Let's go over a few potential buyers that would look really good with Sirius XM and its roughly 19 million subscribers on their arm.

  • Terrestrial radio has been squashed by satellite radio, which has swiped the platform's most ardent fans. Advertisers on terrestrial radio have to settle for the unsavory option of marketing to an audience that refuses to pay for satellite radio. It's not ideal. Unfortunately, there aren't too many terrestrial operators who can bankroll a massive purchase. Clear Channel was acquired for several times the current value of Sirius last year, but it's in private equity's hands now. CBS (NYSE:CBS) makes sense, but it's already leveraged to the hilt.
  • Satellite television makes perfect sense, if a hookup can pass regulatory muster. Ergen's DISH and market leader DirecTV (NYSE:DTV) already have experience with delivering premium monthly programming via satellite.
  • Automakers would have the most to lose if satellite radio goes away. They are the greatest source for new subscribers and are compensated accordingly. Don't wait up for any carmaker to step up to the plate, though. It's a lousy time for the industry. It would also create a huge conflict of interest. Even if the country's three distressed automakers could somehow finagle a way to use bailout funds to make a joint acquisition, it just wouldn't make sense.
  • Some of the more popular reader suggestions for buyout candidates in the past have been tech bellwethers like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL), and search engine players like Yahoo!. Forget the dot-com buyers. Their margins are too juicy to even consider the pummeling their shares would take if they diversified into this lower-margin niche. Apple is also a useless suitor. The company is already skirting satellites by delivering premium real-time audio content through its 3G iPhones. That leaves Mr. Softy. It's a ludicrous notion at first, but Microsoft has a history of supporting businesses with crummy operating margins (like selling Xbox 360s presumably at a loss and consistently taking quarterly losses at MSN), if there is a bigger payoff in the end. For Microsoft, reaching nearly 20 million subscribers is a clear attraction. It would also be a way to finally differentiate and market its Zune. It would not be a popular move with shareholders who can't grasp the bigger picture -- just see how they turned their back on Microsoft after last year's Yahoo! bid -- but it would make sense in the end.

The chances are slim that any of these players, beyond Ergen, will step forward. However, time is running out on Sirius, so it better find out for sure.

Some other Sirius stories:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.