Dallas, Texas 09/30/2013 (Financialstrend) – On September 28, a Delaware Chancery Court Judge Leo Strine ruled that the share holders of the Sirius XM Radio Inc (NASDAQ:SIRI) cannot pursue legal recourse against the board members of the firm for letting a takeover bid go through by Liberty Media without seeking a substantive premium for the stock.
The stock was trading at $3.92 as of close of business on September 27, up 60% in the past 1 year. It has a market capitalization of $24.9 billion with 1596 employees.
Legal challenge to the takeover bid
The case with the Delaware court was filed by “City of Miami Police Relief and Pension Fund” which is one of the major investors in Sirius s. This was following Liberty Media’s successful acquisition of nearly 50 million shares of Sirius to take over majority control with required regulatory approval in January. The City of Miami Police Relief and Pension fund filed suit alleging that the board of directors of Sirius were negligent in their duty to the share holders since they did not counter the takeover bid and take appropriate steps to negotiate a premium on the stock.
Background to legal battle
The back ground to the board’s non action goes back to 2009 loan agreement the board had signed with its lender Liberty Media. At that time Sirius was in dire financial straits and had availed $530 million loan from Liberty Media headed by billionaire John Malone. As per the loan conditions unanimously approved by Sirius board, the company could not erect any defence mechanisms or poison pills to stall a takeover bid by Liberty Media after a three year lock in period.
Judge Strine ruled that said that the share holders had waited too long to find fault in the loan agreement the board had signed with Liberty. He goes on to indicate that “Sirius benefited from the loan at the time of its need and hence Liberty as entitled to was entitled to the deal it struck in 2009” and can take benefit of it.