These days, speculations have heightened an extra notch when we recently learned that John Malone and Liberty filled more Sirius board seats. In that article, we learned:
- On April 12, 2011, Liberty Radio, LLC, a subsidiary of Liberty Media Corporation, appointed Ms. Vanessa A. Wittman and Mr. Carl E. Vogel to our board of directors. Liberty Radio, LLC, as the holder of our convertible perpetual preferred stock, series B-1, is entitled to appoint and elect a number of members of our board directors proportional to its ownership level in the Company. Liberty Radio, LLC previously appointed John C. Malone, Gregory B. Maffei and David J.A. Flowers to our board of directors. With the addition of Ms. Wittman and Mr. Vogel our board will be comprised of thirteen members.
While filling the board seat satisfied a very important component to what might lie ahead-- as it relates of the long term relationship between the two companies, it still leaves things a little unclear as to any underlying intent with respect to contractual restrictions. In this article I attempt to point out some statutes, or conditions (known or unknown), of how any transaction (real or perceived) can unfold between the two companies.
For over two years now, we have discussed one major issue with respect to Liberty and anytime its name is mentioned in the same breath with Sirius; when is the buyout coming? I think this is a fair question considering what we’ve come to know about John Malone’s history. Some of this speculation has also been fueled by Liberty’s own comments over the past year. The first which came last February 2010 during Liberty’s Q4 earnings call, when Liberty’s CEO Greg Maffei said the following when asked about Liberty’s potential liquidation of its 40% stake:
“I do not believe it is likely that we will trigger the gain in Sirius. There is virtually no scenario I can think of that my chairman would let me even talk about doing that. So you’re talking about something we’re either likely to, somewhere down the road, find another way to get liquidity in Sirius or become a purchaser of Sirius. And I think we’ve talked about that in the past. So it’s a logical alternative.”
More fuel was added to the fire when at an annual conference Greg Maffei was asked by audience members about Sirius and its acquisition potential. He offered the following:
“Sirius XM is going to be a very profitable company. “ He then went on to explain that Liberty could either take a larger position following the standstill agreement, or conduct a “spin-off” of sorts similar to that of DirecTV (DTV).
Earlier this year, at the Deutsche Bank Media and Telecom conference he also said:
“So our flexibility, I think, increases over time in terms of how we want to do something. We've talked about alternatives, from us buying 50(percent) over 50(percent), us buying control, us doing a spin, us doing a spin-merge. All those are still on the table. I suspect that us selling the stock for cash is probably not on the table, but all the other ones are. And we'll look at the alternatives we have for our capital, we'll look at where we think the business is. We'll look at what the valuation is, we'll look at what we can get done.”
If you think the candid revelations above by a Liberty insider justified the onslaught of conjecture surrounding the topic, what would you make of the news that surfaced last year, where the Justice Department basically granted Liberty a thumbs-up to increase its voting rights in Sirius? Was it coincidence that shortly after this news, on April 7th Sirius’ shares traded on over 600 million volume; it highest in history? I think not.
In an article earlier this year by Media Tech Analyst titled: March 7th Looms Large for Sirius XM and Liberty Media, we learned of several key restrictions agreed upon under the condition of the 530 million dollar loan that Liberty provided to Sirius in 2009. Here were the key points.
- Liberty Media could not engage in hedging activities prior to 12/31/2009.
- Until the second anniversary of the close of the Phase II investment (on 03/06/11), neither Liberty Media nor affiliates may acquire beneficial ownership in SIRI that would result in >49.9% ownership without the approval of the SIRI board. From the second to third anniversaries of the close, Liberty Media may not acquire any beneficial ownership >49.9% unless it is pursuant to an offer for all outstanding shares not owned by Liberty Media at a premium to yesterday's closing price.
- Liberty Media may not transfer any portion of Sirius holdings to any party other than an affiliate until the second anniversary of the close of Phase II of Liberty Media's investment (03/06/11).
Summary
Now that we’ve got some history of how Liberty got involved with Sirius, as well as some of the discussions that have led to the speculation of a possible buyout, in a future article we will discuss in more detail some of the restrictions mentioned above; particularly the standstill, hedging and transfer.
Even with this information above, speculation remains rampant. But the truth is, other than some general statements from Liberty’s camp about its potential long term relationship with Sirius, there have been no real specifics from which to gain insight on what its ultimate plan may be. While this has frustrated current investors, no doubt the speculation has spurred new buyers of the stock by its recent surge over the past several months.
Disclosure: I am long SIRI.
