In January we wrote about the implications of the second anniversary of the Liberty Media (LCAPA) - Sirius XM (SIRI) transaction, seen here. The write-up solicited a wide level of responses from viewers eager to decipher facts from speculation. Liberty’s CEO addressed that very topic on a recent conference call:
“On the Sirius side, just to review, we can buy our way up to 49.9, just under 50 today. At the end of next month, there's a change in the terms and we can make an offer for all the company's stock. We must make it for all the company's stock and go over 50 in an offer for all and in March of 2012 we could bypass the 50. Those are all opportunities that exist. We fundamentally like the direction of the business. We fundamentally have confidence in the business. So we're probably not looking to collar our exposure, and I think as a practical matter, despite contract limitations, when you have a 40% stake in a company like that, it would be very difficult to collar a meaningful percentage of our equity in any case. But we remain optimistic on the direction of Sirius and the options we're looking at largely involve us being supportive of Sirius, being believers in Sirius, probably not collaring our stake.”
Our original write-up was correct in assuming that Liberty Media can increase its stake to 49.9% today but by the second anniversary on March 6 the company can increase its stake beyond 50% but must make an offer for all of the remaining shares it does not own. In March 2012, the company can increase its shares above 50% without having to buy the entire company. Full access to the NOLs is another part to this and for which Liberty would have to wait, we believe, until August 2012 to get full access. Thus, we are unlikely to see any meaningful action pertaining to Sirius XM from Liberty Media for another year-and a half.
Clearly the company loves the business. We think an ultimate cash free spin of the company in which they would have to give up an operating asset looks like True Position, to make it tax free. Or they can pull in the entire value of Sirius and use the NOLs to shield taxes in the eventual sale of Liberty Starz (LSTZA), where the tax basis is low.
Good luck investing and p.s. we are still waiting for that pull-back.