(Reuters) - A police pension fund is suing Sirius XM Radio Inc’s board of directors for letting Liberty Media Corp take over the company without a fight and without paying a premium.
The lawsuit, filed in the Court of Chancery in Delaware by the City of Miami (Florida) Police Relief and Pension Fund, comes just days after Liberty said it planned to take full control of Sirius and its board by increasing its stake in the satellite radio operator to more than 50 percent.
Liberty, a media holding company, filed an application on Friday with the U.S. Federal Communications Commission to take control of Sirius.
Liberty, led by billionaire chairman John Malone, acquired its initial stake in Sirius in 2009 as part of a deal in which it loaned the satellite radio provider $530 million to help it stave off bankruptcy.
As part of the loan, Sirius’ board agreed not to adopt a poison pill or any defense measures against a Liberty takeover after a three-year standstill. Since the standstill expired in March, Liberty has been buying Sirius shares in the open market to boost its stake above 50 percent.
Sirius Chief Executive Mel Karmazin previously said Liberty could not take over the company without paying a premium, but he downplayed the conflict with Liberty on a conference call on August 7.
The pension fund alleges that the provisions that prohibit Sirius from fighting off a Liberty takeover constitute a breach of the board’s fiduciary duties. The provisions prevent the directors from taking any action to hurt Liberty’s ability to continue acquiring Sirius stock, “regardless of whether Liberty’s acquisition poses a threat to Sirius’ non-Liberty shareholders,” according to the lawsuit.
“Put simply, a board cannot tie its own hands, or the hands of successor boards, in ways that constitute an abdication of their fiduciary duties,” it said.
Sirius’ 13-person board includes five members who are representatives of Liberty.
The plaintiff is seeking compensatory damages and asks Liberty to stop buying Sirius shares on the open market. The pension fund is also seeking class action status in the case against the Sirius board.
Sirius and Liberty did not respond to requests for comment on Wednesday.
Sirius shares were flat at $2.56 while Liberty shares fell 11 cents to $104.21 in morning trading.
The case is City of Miami Police Relief and Pension Fund v. Sirius XM Radio Inc, Delaware Chancery Court, No 7800
Reporting By Liana B. Baker; editing by John Wallace