The news came out Thursday that Comcast (CMCSA) and Time Warner (TWC) are coming to terms on a deal to merge. This puts Charter (CHTR), a company in which Liberty Media (LMCA) has a substantial stake in the proverbial back seat. Does this mean that Liberty and John Malone have lost? It depends on how you look at things.
Liberty Media has also been in the beginning stages of trying to bring all of Sirius XM (SIRI) under its umbrella. Some Sirius XM investors believed that Liberty wanted the satellite radio provider in order to finance the Time Warner deal. Those same investors argued that because Liberty "NEEDED" Sirius XM, that a premium was appropriate and deserved. Well, if the Comcast and Time Warner merger does indeed move forward, then potentially the "NEED" that many assigned no longer exists.
From a Liberty Media standpoint, the argument that there was a prevailing "NEED" with regard to Sirius XM now means that the "leverage" some assumed that Sirius XM might have is now not as strong. This, in my opinion, actually makes the chances of a Sirius XM deal more likely now. Instead of people looking for premiums based on future value or assigning risk in the cable sector, the dynamics of a deal can focus on where it should have been in the first place. A pure stock swap based on the present value of Sirius XM and Liberty Media. A silver lining for Liberty is that it can still add to the Charter market by acquiring some of the territories that a combined Comcast and Time Warner will likely need to spin off.
While some may be disappointed that the Liberty engineered push for Charter to acquire Time Warner came up short, consider this. Liberty's John Malone is about creating value and buying value. Liberty does not often overpay for anything. In these times, that is a pretty good quality to have.
In my opinion Liberty will still want to get a Sirius XM deal done. It creates a better tax situation and allows for an easier path to utilize the good cash flow of Sirius XM to help in transactions that Liberty sees as value added propositions.
In my opinion, this latest news about Time Warner actually offers a little bit of clarity in the Sirius XM transaction. While Sirius XM has not yet responded to the initial Liberty offer, the satellite radio provider has engaged in hiring consultants to assess and help guide independent members of the Board that will be negotiating any deal.
Liberty Media closed up on the Time Warner news while Sirius XM closed down. Both Liberty Media and Sirius XM had been down after an initial pop on the deal possibility. Sirius XM and Liberty have been tied to a pretty narrow range for the last couple of weeks. Following the news Thursday morning Sirius XM and Liberty traded almost triple the average amount of shares. It appears that some players were considering the Time Warner issue in establishing their position in Liberty and Sirius XM. Stay tuned, because it is going to get interesting. In the end I predict Liberty will land on its feet.