Liberty Media (NASDAQ:LMCA), the media titan, has scored a $500 million payday thanks to its majority stake in the satellite radio provider Sirius XM (NASDAQ:SIRI). It was announced today that Sirius XM will conduct an additional $2 billion is stock buybacks on top of the almost completed $2 billion that was announced a year ago. As part of the latest round of share buybacks, Liberty Media will sell $500 million worth of shares. Even when the purchase of Liberty shares is complete, Liberty Media will still own 52% of Sirius XM.
The agreement stipulates that the purchase will be complete by April of 2014. The shares will be purchased in three installments and are anticipated to include $130 million in November, $270 million in January and another $100 million in April. The shares will be purchased from Liberty at a 1.5% discount to the volume weighted average price for the trading days between October 29th and November 12th (10 trading days). The maximum price that will be paid will be $4.18 per share, and the minimum price will be $3.64 per share. Essentially we will know the numbers in mid November.
For Liberty Media, this is a cash infusion of $500 million. If we assume that the price is at $4.00 per share, the company will sell 125 million Sirius XM shares while still maintaining control of the satellite radio company. Liberty received 40% of Sirius XM around 4 years ago when the satellite radio provider was in financial turmoil. Over the past 2 years Liberty Media purchased additional shares and ultimately arrived at a controlling stake of over 3 billion shares worth an estimated $12 billion.
This deal is likely just the beginning. I anticipate that Liberty and Sirius XM will announce future share purchase contracts that will work in tandem with Sirius XM share buybacks. If we look at the situation, Liberty could participate in programs and as long as they remain below half of the program in terms of participation would never have to give up majority ownership.
Ultimately Liberty has about $1.7 billion in cash that it invested into Sirius XM that it would like to extract back from the company. Once Liberty gets back $1.7 billion, we could be looking at a Reverse Morris Trust or a spin-off. I would anticipate that Liberty could get to that point within the next 18 months if share prices of Sirius XM continue to climb. For Liberty Media the Sirius XM deal has been great on paper. Now it is getting to the point of being great for the bank account. Stay tuned.
Disclosure: I am long SIRI, LMCA. 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.