Liberty Media (LMCA) filed a Schedule 13D on January 22nd indicating that it had converted its 6,250,100 remaining shares of B-1 Preferred Stock into 1,293,509,076 shares of Common Stock on January 18th. As a result, it now owns a majority of the outstanding shares of common stock of Sirius XM Radio (SIRI). Liberty also stated that its previously disclosed purchase of 50 million on January 15, 2013, had been acquired "pursuant to a block transaction with a financial institution."
Effect on 7% Convertible Debt
In a previous article, I noted that the action of converting the remaining shares could trigger a "Fundamental Change" that could impact the holders of the 7% Exchangeable Senior Subordinated Notes (or Notes) due 2014. The filing of the 13D activates the clause entitling the holders of the Notes to approximately 38 additional shares per $1,000 Note if they convert the Notes to common stock within a specified period of time. Whether these additional shares are sufficient to motivate the holders of the Notes to now convert their Notes to common shares will not be immediately known. However, if the conversion does occur, there could be more than 300 million shares hitting the market and/or reducing the open short interest.
Liberty owns $11 million of the 7% Notes, and had previously reported these as being convertible into 5,866,666 shares of Sirius XM. The current 13D shows this number is now 5,974,509 shares. Note that the difference represents only the dividend adjustment event and does not account for the additional or bonus shares resulting from a Fundamental Change event.
Changes to the Board
In a separately filed 8-K, Sirius XM disclosed that:
On January 18, 2013, Leon D. Black, Lawrence F. Gilberti, and Jack Shaw resigned as members of board of directors effective immediately. The decision of Messrs. Black, Gilberti and Shaw to resign were not the result of any disagreement with us on any matter relating to our operations, policies or practices.
The 8-K also announced the appointment of the following Liberty former and current executives as replacements Mark D. Carleton, Robin S. Pringle, and Charles Y. Tanabe. Also announced was that Sirius XM Chief Executive Officer, James E. Meyer was appointed to the board. Of special interest to non-Liberty shareholders is the following statement regarding the make-up of the board:
Liberty has acquired control of more than 50% of our voting power and, as a result, we qualify as a "controlled company" as defined in Rule 5615("C")(1) of the Listing Rules of The NASDAQ Stock Market ("NASDAQ Rules").
Therefore, as of January 18, 2013, we are exempt from certain corporate governance requirements of the NASDAQ Rules including, among other items, the requirement that our board of directors be comprised of a majority of independent directors. We intend to rely on these exemptions available to a controlled company. The controlled company exemption does not extend to the audit committee independence requirements and we have not made any change to our audit committee at this time.
Sirius XM is now a company firmly controlled by Liberty.
What Might Liberty Now Do With Sirius XM?
Just about anything, at least that's the impression one gets from the 13D. Here is a list of future potential actions by Liberty:
Liberty intends to assert control over the Issuer by, among other things, influencing management, and, in addition to the actions referred to in this Statement, may take any one or more of the following actions:
("a") The acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer;
("b") An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries;
("c") A sale or transfer of a material amount of assets of the Issuer or of any of its subsidiaries;
("d") Any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board;
("e") Any material change in the present capitalization or dividend policy of the Issuer;
("f") Any other material change in the Issuer's business or corporate structure;
("g") Changes in the Issuer's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person;
("h") A class of securities of the Issuer being delisted from a national securities exchange or ceasing to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association;
("i") A class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(4) of the Act; or
("j") Any action similar to any of those enumerated in items - above.
And, if that's not enough, Liberty also stated that in the future it may decide" to acquire additional securities of the Issuer, through open market purchases, private agreements or otherwise, (ii) to dispose of all or a portion of the securities of the Issuer owned by it..." and then adds:
Notwithstanding anything contained herein, the Reporting Person specifically reserves the right to change its intention with respect to any or all of such matters.
Liberty now controls the board of Sirius XM. It remains to be seen what's next on the agenda, including the structure of the previously announced buyback, increasing the debt and the size of the buyback, announcing a permanent CEO, strategic changes, etc. Two weeks from now when Sirius XM holds its year end conference call, investors may get some answers.
Then again, we may only be left with more questions.
Disclosure: I am long SIRI.
Additional disclosure: I may write covered calls against my current position or open additional positions in either Sirius or Liberty at any time.