Sirius XM Has A New Owner

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 |  About: Sirius XM Holdings Inc. (SIRI), LMCA
by: Stephen Faulkner

Sirius XM Radio Inc. (NASDAQ:SIRI) has a new owner, and it is certainly no surprise that owner is Liberty Media (NASDAQ:LMCA). As of Thursday evening 1/17/2013, Liberty released a form 4 indicating that it had purchased 50,000,000 shares of Sirius XM on 1/15/2013. This brings Liberty's stake to roughly 50.5% and cements control of the company in Liberty's hands.

Liberty Media now owns 1.99 billion common shares and 1.29 billion convertible shares, according to a filing today. If the converted stock is added to the outstanding shares of New York-based Sirius, Liberty Media owns about 50.5 percent.

This move by Liberty, as well as the speed with which it was executed, has not been unexpected. For those who have read my most recent articles, I originally hypothesized on 1/3/2013 that Liberty would make its purchases quickly:

It's simply another bell rung for Sirius XM as the New Year enters into full swing. Now that Liberty is approved, it can purchase the final shares it needs to go to control, and that should happen within the next 60 days.

I don't expect Liberty to wait, and I expect Liberty will purchase these shares in very short order.

I reinforced this opinion on 1/9/2013:

But patience is not necessary, or even prudent, in all moves Liberty may make, and on the other end of the spectrum, I believe Liberty Media will be in a hurry instead of exhibiting patience with regard to taking control of Sirius XM.

There's no reason to wait. Liberty needs a relatively small number of shares to move to control, and it should be expected that the final shares will be scooped up as soon as possible. It doesn't particularly matter if Liberty pays $3, $3.10, or even $3.20 on these final shares. They are a drop in a massive bucket, and a few hundred thousand dollars extra, or even a few million on a stake that is ultimately worth billions, is "chump change" if it cements control. Do not expect Liberty to be patient here, and do not expect Liberty to take the full 60 days. There is no reason for it to do so.

And yesterday, on 1/17/2013 in an article submitted the day before publishing, I indicated that investors should pay attention and that a large buyer had been scooping up shares of Sirius XM in the previous sessions.

+$430 million. Also notice the "B/S ratio" which is a ratio of shares bought vs. shares sold. These are currently at record levels that I have not seen in well over a year now. Generally, a value on the B/S ratio above 1 is a positive sign. Above 3 indicates extremely high accumulation rates. Investors should look at recent data as heavy buying which may be related to the FCC announcement that Liberty Media has the green light to go over 50% ownership of Sirius XM.

Does the buyer here have to be Liberty Media? No. Liberty is not the only game in town when it comes to interest in Sirius XM, and other large players could very well be purchasing here, or another entity could be purchasing the Liberty in a forward contract.

I'd like to take a moment to call "BINGO!" on the last assumption. It does appear that Liberty Media was using a third party for accumulation during this period. Why? Because when you look at the form 4 filing you will notice that the transaction date of 1/15/2013 is for 50,000,000 shares but if you look at the trading volume for that day you will notice that it only numbers 39.51 million. This points to a third party fill over several days prior and would explain why we did not see form 4 filings from Liberty during this process as they were not required until Liberty took possession of its shares.

As I stated in the 'Secrets' article, following the money flow over the past several sessions has indicated a big buyer, and that buyer has now been revealed as Liberty Media.

It should be mentioned that trade flow over the past week has actually indicated buying that exceeded Liberty's purchases alone. Also on 1/17, after Liberty's completed purchase, money inflow into Sirius XM was again high with a 3.41 B/S ratio and +$63.1 million. In my opinion this points towards additional buyers.

Could the buyer be Sirius XM itself, purchasing shares under its $2 billion buyback program? It's quite possible. Now that Liberty Media has taken control of the company, investors should not be surprised if buybacks are initiated post haste.

What does all this mean for investors of Sirius XM? In my opinion, it means you are in good hands. As I have previously stated, for right now what is good for Sirius XM is good for Liberty Media, and because of this Liberty will do its best to ensure that its investment in Sirius XM appreciates, or at the very least remains stable. I expect buybacks under Sirius XM's $2 billion repurchase plan to continue to add buying pressure to the stock, and contribute to subsequent rises in the share price. Investors should also consider that Sirius XM may now be more attractive with a majority owner, and thus may attract additional interest from institutional investors.

And let's not forget the $157.8 million Liberty Media just spent buying Sirius XM shares. My opinion is that these were bought mainly from traders who were selling into an overbought technical signal over the past few days. Taking of profits by longs, and bad bets by shorts who have not taken their time to extensively research Sirius XM may put these individuals in a position to be buyers in the near future.

As I have said in the past, these traders, or "weak hands" have been selling into the strong hands of Liberty Media. That creates an imbalance, and has repeatedly resulted in dramatic price increases in the past as this buying pressure unwinds. It's a lead / lag effect where Liberty buys from the short term traders and does not move the price. Then the short term traders establish long positions or cover shorts again and the share price moves quickly once certain technicals catch up. There's little reason to believe that this will not happen again.

Investors should look for a bounce before Sirius XM releases earnings on February 5th. It might be prudent to watch the sentiment of the overall market as well, which is currently sitting at highs which have not been seen since 2007.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.