UPDATE 1-Sirius sets long-awaited buyback, dividend

* Sirius to buy back $2 billion in shares

* Declares special cash dividend of 5 cents per share

* Dividend payable on Dec. 28

Dec 6 (Reuters) - The board of U.S. satellite radio company Sirius XM Radio Inc approved a $2 billion common stock repurchase program and issued a special dividend, giving a big payout to its biggest shareholder, Liberty Media.

Liberty Media, which owns about 49.8 percent of Sirius' stock and is trying to gain control of the radio company, said it will participate in the company's share repurchases in a way that will not affect its ownership interest.

Sirius declared a special cash dividend of 5 cents per share of common stock, payable on Dec. 28 to shareholders as of Dec. 18. The company expects to pay about $325 million in cash dividends.

The company had $556.27 million in cash and cash equivalents for the quarter ended Sept. 30.

The move was long expected by analysts and investors but Sirius did not reveal the timing of the buyback. It said the timing and amount of shares repurchased would be based on the "evaluation of market conditions".

Macquarie analyst Amy Yong said she expects the buyback to be implemented in 2013.

It wasn't that long ago that Sirius was badly strapped for cash and turned to John Malone's Liberty Media for funds.

Liberty acquired in 2009 a roughly 40 percent stake in the satellite radio company as part of a deal in which it loaned Sirius $530 million to help it stave off bankruptcy.

Sirius, home to one of radio's most popular talents, Howard Stern, has been through a management shakeup as Liberty tries to wrest control.

Its CEO Mel Karmazin said he was stepping down in February, also a long-anticipated move since Karmazin is famous for not wanting to work with controlling shareholders.

Sirius XM shares rose 6 cents or 2 percent to $2.83 apiece while Liberty Media shares rose $1.69 or 1.6 percent to $108.02 in early trading.