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Summary

  • It's a ratio.
  • Liberty's offer, originally valued at $3.68, would now value Sirius XM at $3.15.
  • Since the offer is off the table, focus on what matters, not on wild speculation.

It's a ratio. It's a ratio. It's a ratio.

I keep reading the following.

'Now' the offer by Liberty to exchange shares of Sirius XM (NASDAQ:SIRI) for shares of Liberty Media (NASDAQ:LMCA) probably looks more attractive with the share price of Sirius XM at present levels near $3.15 per share. Such comments suggest investors now should be happy to take the '$3.68 offer' were it put back on the table.

This message goes to the authors out there who keep perpetuating this misinformation. Get it straight.

The offer was a ratio. That ratio was 0.076 shares of new Liberty Media class C stock, split off from Liberty Media class A shares, per share of Sirius XM. Since the C shares would have been a tracking stock and the number of shares increased over Liberty's A shares, the valuation placed on Sirius XM in the exchange can easily be found by the formula :

Liberty Media class A Price * (0.076 / 3)

At current pricing near $125 per share, that formula above yields a valuation of Sirius XM at present at $3.16 per share, one insignificant penny above the share price as I write this. The fact of the matter is that Sirius XM is still trading in parity with Liberty Media even though the offer has been removed.

When the offer was made, the exchange ratio valued Sirius XM at a higher premium than that ratio currently would. Were the offer put back on the table without being modified then investors would be looking at less of a premium today than they were previously.

In order to get the $3.68 valuation, if the offer was put back on the table, the ratio would have to be increased to 0.0883. That might be worth taking a look at if one felt that Liberty Media was undervalued in similar proportion to Sirius XM.

But there's no sense in getting into all that. It's writing about dreams and hopes and a bunch of guesswork that, while it might have a remote possibility, also has a remote probability. The two combined make the offer hitting the table again anytime soon highly unlikely.

Investors would do well to focus on what matters. Quarter 1 earnings will be coming on April 24th, and I expect them to be within range of company guidance. Sirius XM will complete its purchase and retiring of tens of millions of shares from Liberty Media this month, and I expect resumption of open market purchases after that point.

Once that happens, there is the potential of nearly $2 billion in share purchases due to run through the open market. That's not friendly territory for shorts, who have been returning to historical positions as Sirius XM has moved lower. It should be, though, friendly territory for longs. That should be a nice change of pace for long investors who have held or added to positions during the downturn over the last 6 months.

Source: Sirius XM: At $3.15, Still Trading In Tandem With Liberty At $125

Additional disclosure: I am long SIRI January 2015 $2.50 to $3.50 calls.