Liberty's Acquisition of Barnes & Noble: Is There a Sirius Link?

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 |  About: Sirius XM Holdings Inc. (SIRI), Includes: AMZN, BKS, LMCA, QVCA
by: Richard Saintvilus

I think it is fair to say that Sirius XM Radio (SIRI) investors have developed a “big brother-little brother” relationship with Liberty Media Corporation (LCAPA). Especially since Liberty took a 40% preferred stake in Sirius two years ago and saved it from bankruptcy by providing loans totaling $550M and credit agreement guarantees in March of 2009. Since then investors have been waiting on pins and needles wondering what’s next. Sirius investors are known to listen to Liberty’s conference calls hoping to gain insight on what the next move is going to be. On Thursday 5/19, investors received some indication on what that next move might be.

It has been reported that Liberty Media has offered to buy Barnes & Noble (NYSE:BKS), the struggling U.S. bookseller, for $1bn, in an unexpected deal that would significantly diversify Liberty’s holdings while adding some interesting theories to the troubled U.S. bookselling business. It is no secret that Barnes & Noble’s book struggles are not unique to the company but has been something that has impacted brick and mortar book retailers for quite some time. The deal is reportedly valued at $17 per share, after the market closed on Thursday. It cautioned that the company’s board has not reviewed the proposal and that no deal was assured.

While the proposed sale of Barnes & Noble should not come as a surprise, the offer did come from an unexpected source. John Malone, the billionaire chairman of Liberty, is known to be an astute deal hunter. But Mr. Malone has minimal experience in physical retail. Liberty is best known for its online and television holdings, which include the QVC home shopping channel, a collection of websites, and the Starz television channels.

Barnes & Noble announced in August that its board was putting the company up for sale, saying that its stock was “significantly undervalued.” It formed a special committee to review its options and enlisted Lazard as its financial adviser and Morris, Nichols, Arsht & Tunnell as its legal adviser. Barnes & Noble said on Thursday that the special committee had not yet evaluated the proposal from Liberty Media, and warned shareholders that there was “no assurance” that a definitive offer to buy the company would be made.

Barnes & Noble, facing increasing competition as more people buy electronic readers such as Amazon’s (NASDAQ:AMZN) Kindle, hired Lazard Ltd. last year to explore a sale. Barnes & Noble makes the Nook e-reader, and some potential bidders balked at a purchase because of how long it may take the chain to generate more digital sales, two people said last month. The offer is contingent on Leonard Riggio, Barnes & Noble’s chairman, maintaining an equity stake and management role in the company.

Summary

Aside from the obvious synergies that this deal would present to Liberty’s already robust portfolio of companies, the immediate question that I thought of was what could this mean for Sirius? Well, for starters, we know Sirius has its book radio channel, one that can immediately expand into the best book audio content available. Users will then be able to tune in to the best audio books and drama. Where the books come to life and the pictures are in your head. It is also interesting to note that there is a channel called BookTV, I would not put anything past John Malone to make something incredible out of something that nobody saw coming. This “chapter” is not over just yet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.