Sirius XM ( SIRI) is in talks with the parent of DirecTV for a capital injection that may help the satellite radio provider thwart Charles Ergen and his bid for control of the company.

Sirius XM and billionaire John Malone's Liberty Media ( LINTA), which controls DirecTV, are reportedly in advanced talks that would see Liberty make an undisclosed investment and become a "white knight" for the satellite radio operator, according to The Wall Street Journal, which cited people familiar with the matter.

If true, the move creates a tense situation with DirecTV facing rival EchoStar ( SATS), which sells set-top boxes and was the former parent of Dish Network ( DISH), in a showdown for control over Sirius XM.

EchoStar and its CEO Charles Ergen had accumulated part of a $300 million tranche of Sirius XM debt set to mature on Feb. 17. Ergen has reportedly offered to restructure Sirius XM's debt and inject several hundred million dollars of capital into the company in return for control. Sirius XM was approached with the offer late in 2008 and declined, reports have stated, although the proposal still remains on the table.

"It makes sense for Sirius to talk to DirecTV about financing alternatives," said Fred Moran, managing director and media analyst for the Stanford Group. "Clearly, Sirius has next to no chance of getting any help from banks or lenders. If Sirius can get some financing help from DirecTV, it may unlock terms that are better than entering bankruptcy and ceding control to EchoStar."

Time may be running out for Sirius XM. The New York Times reported Tuesday that Sirius XM may file for Chapter 11 bankruptcy protection "within days," and that it had been working with a restructuring expert and a bankruptcy lawyer to prepare for such a filing.

"Whoever owns and controls the majority of the debt of a company that is headed toward bankruptcy will become the controlling enterprise post-bankruptcy," said Moran. "It's quite possible that Charlie Ergen's group is looking to take over Sirius for pennies on the dollar."

Moran adds that EchoStar and Ergen "look more like an opportunist ready to pounce on a struggling company to gain control of their operations should it default." Ergen's group is "buying the debt of Sirius as a way to backdoor itself into controlling the assets."

With less than a week to go until a chunk of the company's approximately $3.3 billion in debt will come due, and with just under $1 billion set to mature before the end of the year, Sirius XM is in a tough spot. Making matters worse for the company, EchoStar is said to also control a $400 million tranche of Sirius debt that expires in December, according to the Journal.

Additionally, a sharp tail-off in U.S. automobile sales, which is the bread and butter of Sirius XM's business, has investors worrying about the company's viability. Sirius XM has still yet to post a quarterly profit, and during its third-quarter report, several key metrics for the company weakened, including net subscriber additions, the conversion rate of auto installations and monthly churn.

"Sirius XM faces substantial hurdles, both in regard to their operations and their balance sheet," said Moran. "The debt obligations that are due this year may not be refinanced, given the current credit market and the company's lack of cash flow. The possibility of bankruptcy has increased and Sirius faces few options at this point."

One reported problem has been the standoff between Ergen, a satellite mogul in his own right, and Sirius XM chief Mel Karmazin, former president of CBS ( CBS). With the new twist in the plot, courtesy of Liberty and DirecTV, one option certainly looks better than the other for Karmazin.

"Mel has fought ferociously to stave off bankruptcy and certainly does not want to fall under the control of Charlie Ergen," said Moran. "If he could do some sort of deal with DirecTV and Liberty, he might have a better chance of getting financial participation and keep his job."

Either way, it appears that Sirius XM shareholders will be on the losing end. Since the July merger between Sirius and XM Satellite radio, the stock has declined more than 97%. After plunging 50% a day earlier, Sirius XM shares were up 30% to 7 cents.

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