Sirius XM (SIRI) recently held its Q1 conference call and announced at that call that the company has already repurchased 209 million shares of its equity. The news came as a surprise to many and the equity saw immediate price appreciation based on a solid quarter as well as the share buyback news.
In looking at the company report it became clear that Sirius XM had bought back these shares without having to dip into its $1.25 billion dollar credit facility. Seeing that raised a natural question in my mind. It was very apparent that the company can actually afford to to buy back more shares than the already announced $2 billion dollar program. In fact, it is my opinion that the company can still afford to buy back $2 billion on top of the approximately $650 million already spent. This would make the total buyback about $2.6 billion instead of $2 billion.
In my opinion the company will announce a larger buyback program sometime in mid to late Summer of this year. This is noteworthy because at that point Liberty Media (LMCA) will likely begin participating in the buybacks to see back its high basis shares. In theory, it will be highly beneficial for Liberty Media to have the share buyback program highly publicized. This is because Liberty has some 706 million high basis shares to sell back. Obviously, the more Liberty Media gets for those shares, the more money it has to pursue some other ventures, particularly in the cable television sector (on an international scale).
Liberty Media invested about $1.7 billion into these high basis shares and has stated that its goal is to get back that cost basis prior to doing any spin or Reverse Morris Trust. At a price point of $3.50 Liberty could recover the cash invested by selling just 485 million shares. That would leave another 220 million shares for Liberty to sell next year and the year beyond, all while maintaining an ownership level above 50%.
In theory one could argue that once Liberty begins to participate in selling back shares it will want to sell them at prices as high as possible. One way to accomplish that is to announce an increased buyback program and make the fact that Sirius XM is in the market for shares well known. That benefits Liberty Media as well as other shareholders by helping drive up the price.
For savvy investors this could present a very compelling play in the latter half of the year and beyond. As long as Sirius XM is demonstrating solid performance, and there is no reason to think it won't, the share buyback could be a bigger driver than the fundamental performance of the company. What could otherwise become a rather boring and predictable stock may now have some real sex appeal.
The bottom line is that investors may want to seek out buying opportunities over the next few months with the understanding that there is a compelling story that can develop in the last quarter of the year. Maxim Group analyst John Tinker also sees a higher than already announced share buyback program. Stay Tuned.