Sirius XM Radio (SIRI) has been a promising stock since its crash in 2008. It has also been a solid low risk strategy to play the growth of the auto industry. The huge gains in share price since 2008 are attributed its ability to refinance debt at much lower prices and benefit from less competition thanks to one of the longest and most complicated mergers in media history with Sirius buying XM Radio its main competitor. The issue for SIRI is the rising Subscriber acquisition costs (SAC) and that is to be expected considering they cannot rely on the auto industry for growth anymore because of the large saturation already.
Sirius XM Radio's share price was largely driven in 2013 by the potential for Liberty Media to buy out the remaining stake of SIRI. This was confirmed on Friday as Liberty Media (LMCA) made an offer that would convert SIRI shares into Liberty Media class C shares. The problem for investors is this offer equates to roughly 3.68 per share, which is only an 11-cent or 3% premium to Friday's closing price. If the market reacts negatively to this offer and investors start selling, especially those who were hoping for a much higher buyout offer will provide a good buying opportunity. For those interested in becoming a long term shareholder, it offers the potential to get in at a 3% discount when shares are converted. The buyout offer is 12% or 50 cents below the 52 week high of SIRI, which means there is a strong possibility of Liberty raising their offer. The best opportunity for investors who do not currently own SIRI is too buy any dip, which should provide the potential for a 3% gain with very little risk. Buying also provides the opportunity for a gain of over 3% if the buyout offer is raised.
This buyout will benefit Liberty Media which could use Sirius in more of its pre-existing services and would be able to reach many more niches and customers with its vast network. The buyout also should provide Liberty Media the ability to drive down subscriber acquisition costs, which would benefit LMCA shareholders greatly. The purchase of Sirius XM will also benefit Liberty shareholders, as it will bring in massive cash flow and as well as assets to borrow against. This scenario would help support the recent rumors of Liberty Media's interest in buying Time Warner.
I see this buyout as very positive for LMCA shareholders and for those who would like to become shareholders they can get in at a 3% discount. For Sirius XM shareholders they are getting the short end of the stick, with very little premium to its current trading price. With the acquisition Liberty Media should be looked at even more favorably and the cheaper they can buy SIRI the better for them. A lot of things can go wrong with mergers and to make this go smoothly Liberty might have to hike its buyout offer. I plan to buy shares of Sirius XM on a dip on Monday for my long-term portfolio as I feel a deal will get done, which will allow me to convert my shares to shares in which I would be acquiring them at a discount to acquiring on the open market.