Liberty Media (LMCA) announced today that the company has sent a proposal to the board at Sirius XM (SIRI), through which the satellite radio service would become part of the media empire controlled by billionaire John Malone. The proposed transaction is tax free.
Under the terms of the proposal Sirius XM shareholders (outside of Liberty Media and its subsidiaries) would get 0.076 shares of a new, non-voting Liberty Media Series C stock. Immediately prior to the transaction, shareholders of Liberty Media's series a and series B stock would be converted, on a 2:1 basis, Liberty Media's new series C stock. After the transaction, Sirius XM shareholders, aside form Liberty's current stake, would own 39% of the newly formed company.
The proposed transaction would need to pass muster with the independent members of the Sirius XM Board of Directors, as well as a majority of Sirius XM's independent shareholders. Liberty shareholders must also approve of the transaction.
The offer represents a mere 3% premium (about $3.68) to the closing price ($3.57) of Sirius XM shares on January 3rd. This would seem to be a relatively small premium in the minds of many long-time shareholders, but these shareholders need to remember that they will now hold shares of a much stronger Liberty Media. There will certainly be a lot of speculation surrounding this transaction in the coming weeks. As yet, there has been no official response from Sirius XM.
Investors looking to play this event may need to act fast. There is certainly some opportunity here. In anticipation that some sort of transaction would happen, I sold half of my Sirius XM position long ago to become a shareholder in Liberty Media. In the longer term, Sirius XM may be able to get better synergies as a piece of Liberty Media. Combinations tied to cable could be just the beginning. Stay tuned!