UPDATE 2-Investor sues Sirius board for not fighting Liberty's control

Wed Aug 22, 2012 7:04pm EDT

* Florida pension fund sues Sirius board in Delaware

* Liberty loan to Sirius in 2009 had anti-takeover provisions

* Fund says provisions breached board's fiduciary duty

* Liberty filed with FCC for control of Sirius last week

By Liana B. Baker

Aug 22 (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 on Tuesday, 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.

At a hearing Wednesday, Chancellor Leo Strine, the court's chief judge, refused to set a schedule on the pension fund's request for a temporary restraining order, which would have blocked Liberty Media from increasing its stake in Sirius, said Stuart Grant, a lawyer for the plaintiff. Strine gave the defendants 20 days to respond to the complaint, Grant said.

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 Aug. 7.

At least one legal expert on corporate governance said cases brought against a company's board are tough to win.

"Ultimately, unless you have some serious conflicts of interest on the part of the directors, the Delaware courts are typically protective of the decisions the directors make," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

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 Sirius' board.

Both Sirius and Liberty did not respond to requests for comment on Wednesday.

Sirius shares closed flat at $2.56 while Liberty ended down 43 cents at $103.89.

The case is City of Miami Police Relief and Pension Fund v. Sirius XM Radio Inc, Delaware Chancery Court, No 7800

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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