Liberty Pulls Sirius XM Offer - Creates Tracking Stocks

Mar.14.14 | About: Liberty Media (LMCA)

Summary

Liberty Withdraws Offer For Sirius XM.

Liberty To Create Two Tracking Stocks.

Liberty Timing Impressive.

In a move announced after the market closed, Liberty Media (NASDAQ:LMCA) has announced that it is withdrawing its offer for Sirius XM (NASDAQ:SIRI), while at the same time creating two tracking stocks. The tracking stocks will be Liberty Media Group and Liberty Broadband. The Liberty Media Group tracking stock will trade under the symbol LBRDA while Liberty Broadband will trade under the symbol LRBDB.

Liberty Media, if nothing else, is quite agile when it comes to maximizing value and timing things. This move comes after the stock has been depressed by almost 13% in three months. Many of the Liberty Media investments are actually up quite substantially in the same time period. By creating tracking stocks, Liberty can remain flexible while also positioning itself for later stock deals. Liberty, after hours, was up almost 1% on the news, while Sirius XM's stock went down another 2.4% after what was already a bad day for the equity.

The structure is a bit complex, but the pertinent points are:

  • Each share of LMCA will garner 1 share of LBRDA and 4 shares of LRBDB.
  • Shareholders will receive a subscription right to acquire one additional share of series A or B series Liberty Broadband stock for each five of shares received as part of the distribution. These subscription rights offer a discount and have an expiration date.

In making this move, Liberty will have stock groups that are more focused. This could make future possibilities for both groups more attractive than what exists today. While Liberty did state that the proposed deal with Sirius XM is no longer applicable, it has not closed the door on possibilities as time passes. Liberty anticipates closing on the new structure by the third quarter of this year.

Liberty also disclosed that $340 million of its Sirius XM shares that were under agreement with the satellite radio provider will be sold according to the terms of the agreement. Liberty will receive $3.64 for each of those shares. Sirius XM had put all share repurchases on hold pending a resolution to the Liberty Media offer made in January. In theory, the overall Sirius XM share buyback program could resume, now that Liberty has withdrawn its offer, though it may be some time before buybacks of publicly held shares resume. Sirius XM has made no statement as yet.

This announcement, while complex, is interesting in its design. The subscription component of the shares offers a very tempting 20% discount on obtaining these shares. This will essentially keep players on board and ensure that the transition can happen with a bit less volatility.

This may seem like any actions from Liberty may be in a pause mode until this transaction completes in the third quarter. However, this is Liberty Media. Management of this company likely has plans A, B, C, D, E, and F and then contingency plans on top of that. Liberty will seize any opportunity to get value and deliver value. Stay Tuned!

Disclosure: I am long LMCA, SIRI. 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.