This morning Sirius XM Radio (SIRI) announced that its board had authorized a second $2 billion share buyback. More importantly, it announced that Liberty Media, the company's majority owner would begin participating in the buyback:
The Company also announced that it has agreed to repurchase $500 million of common stock from Liberty Media and its affiliates at a price per share determined based on a discount to the volume weighted average price of the common stock during a period following the release of the Company's earnings for the third quarter.
Also included in the announcement was an update on the current share buyback:
To date, the Company has repurchased 476,545,601 shares of common stock for an aggregate purchase price of approximately $1.6 billion. The shares are intended to be purchased in three installments in November 2013, January 2014 and April 2014, but the purchases may be accelerated under certain circumstances.
The 8k filing reveals the following additional information:
- The Liberty Media (LMCA) discount will be 1.5% from "the average of the daily volume weighted average price ("VWAP") per share of the Common Stock during the ten-day period beginning on the third trading day following the date of the public release of our third quarter 2013 earnings"
- The VWAP will have an upper boundary of $4.18 and a lower boundary of $3.64
- The purchases will be made in three phases, with the first purchase amount of $130 million taking place in November, the second in January of 2014 (for $270 million) and the third in April of 2014 (for $100 million).
The agreement with Liberty also incorporates certain conditions that allow the timing of the transactions to be accelerated or delayed.
At the time of the last earnings conference call, Sirius XM had repurchased 391 million shares for $1.28 billion, for an average price of $3.27 per share. If the latest purchases of 85.5 million shares (476,545,601 - 391,000,000 = 85,545,601) cost $0.32 billion ($1.6 billion - $1.28 billion), it indicates that the latest purchases may have cost approximately $3.74 per share, a significant increase from the prior year to date average of $3.27 per share. It is certainly no surprise that the cost of the shares repurchased has increased significantly since the last report, as most investors knew that the share price of Sirius had been quite strong since that call.
It is also not surprising that Liberty has begun selling its shares back to Sirius XM. At the recent Goldman Sachs 22nd Annual Communacopia Conference, Liberty CEO Greg Maffei had discussed the relatively low cash position at Liberty and how Sirius XM could be a source of cash, saying the following:
At some point, we will either, through dividends up from Sirius or sales of Sirius or some other longer term refinancing mechanism, reduce that margin debt.
Clearly, Liberty has chosen to use one of the above options by selling shares of Sirius XM. However, Liberty never keeps things simple. In a related press release by Liberty, it also revealed that it was raising $500 million through a private offering of convertible senior notes and had entered into a complex transaction with Comcast (CMCSA).
The arrangement with Comcast includes Liberty repurchasing 5.2% of Liberty Media stock. However, it didn't stop there. The transaction, which was recently completed, noted that:
a subsidiary of Comcast exchanged approximately 6.3 million shares of LMCA for a newly created subsidiary of Liberty Media which holds Leisure Arts, Inc., approximately $417 million in cash and Liberty Media's rights in and to a revenue sharing agreement relating to the carriage of CNBC. The exchange is intended to be tax-free.
What should be recognized by Sirius XM investors is that the $500 million share repurchase arrangement with Liberty will put no external pricing pressure on the shares of Sirius XM. With $1.6 billion having already been used from the former buyback, authorization, and a commitment to purchase $0.5 billion from Liberty, the question now becomes whether or not Liberty will be participating in remaining $1.9 billion of the newly authorized buyback.
It should be remembered that Liberty will likely wish to remain at a majority position. To do so, it must time its sales, and also consider that there will be $502,370,000 of exchangeable notes converting into 273 million additional common shares late next year, as well as the likelihood of employee stock options being exercised and converted into new shares of Sirius XM.
The shares of both Liberty Media and Sirius XM have reacted very favorably to these announcements.