Liberty Media (LMCAD) has now gone over 50% ownership in Sirius XM (NASDAQ:SIRI) with a 50 million share purchase on January 15, 2013. In an SEC filing made public last evening the media giant revealed that for the first time Liberty is in actual control over Sirius XM.
The move was not unexpected. On January 4th, upon FCC approval for Liberty to take control I stated that Liberty would likely make this move sooner rather than later as it gives Liberty the ability to take charge of the direction of the company now rather than down the road.
As yet Liberty still has not converted its remaining preferred stock into common stock. The company had stated to the FCC that such a conversion will happen within 60 days of FCC approval. That means that sometime on or around March 4th we can anticipate that Liberty will convert its preferred shares.
According to the SEC filing Liberty now holds 1,999,291,236 shares of Sirius XM common stock at this point. Liberty's remaining preferred share stake converts into an additional 1,293,509,077 shares. Liberty also holds 7% bond notes that convert to an additional 5,866,666 shares. All told the share interest Liberty has will be at 3,298,666,979 shares worth almost $10 billion.
Ironically, this most recent purchase by Liberty came at a cost just short of the $164 million dividend the company received from Sirius XM in late December. This made the buy decision relatively easy.
Now that Liberty Media has a controlling interest the company can make adjustments to the Board of Directors, carry more influence on the decision of whether Interim CEO James Meyer will stay or go, and effective control of the direction the company takes moving forward. Essentially a chapter has closed on Sirius XM and a new era has begun.
There has been a good deal of speculation about the ultimate strategy of Liberty Media. The most common discussion centers around a Reverse Morris Trust which would be a tax friendly way to realize substantial gains worth several billion dollars. Other discussions center on a $2 billion share buyback program announced by Sirius XM. Half of that $2 billion will wind up in the hands of Liberty Media, softening the blow of $1.657 billion that Liberty sunk into buying common shares. The plans of Liberty will take some time to play out and that is probably as good for Liberty Media as it is the regular shareholder. 2013 is setting up to be a good year for Sirius XM.
One aspect that investors will want to consider is that the buying pressure we have seen from Liberty Media in the past may well evaporate now. The cat is out of the bag at this point. Liberty has the shares needed to be the majority owner. In the past the knowledge that Liberty was a buyer and still needed to be a buyer was a factor that supported keeping the stock price higher. Now we have the share buyback program as the remaining defender of share price.
With Sirius XM announcing Q4 earnings in early February, we could be in for some interesting trading over the next couple of weeks. Stay tuned.
Additional disclosure: I am also long LMCAD