Sirius XM: Buyout Possible in Near Future

Aug.19.11 | About: Sirius XM (SIRI)

Ever since I first found an article on Seeking Alpha through a link on a Yahoo Finance page, I became hooked on this site. It wasn't just the articles. More important were the comments on the articles and debates between commentators and authors, commentators and commentators and even between authors. These interactions were often more informative than the articles themselves.

There were nuances and aspects of issues that were covered and that helped me get a deeper understanding of a particular company. I confess to following a very limited number of companies on SA, but my favorite is Sirius XM (NASDAQ:SIRI). It is more than just a stock to many of the members of this site. The passion of those that are long is somewhat understandable, why own a company if you don't believe in it?

The passion of those that think it is a stupid investment is more surprising. Why care so much about a stock you don't own and wouldn't consider owning and go out of your way to post all the negative comments? Are they resentful that they lost a bundle on this investment? Are they all short? Are they altruistic and going out of their way to help the longs see the error of our ways?

The stock has been hit harder than most since reaching a peak of $2.44 on May 31. This has continued to occur even after what many feel was a very bullish conference call during which the 2011 guidance of subscriber growth was increased by 200,000 and free cash flow was increased by $50 million. And as the share price declined, the passions on both sides seemed to reach new heights. The stock closed yesterday at $1.78, well above the $1.63 intra-day low touched on August 8th.

Many know that this stock is volatile. It is trading at a high multiple on the expectation of continued future growth. Typically, high P/E stocks are punished when expectations aren't met or whisper numbers aren't exceeded. It is not unusual for the slightest bit of negative news to result in a large downward move in the share price.

The movement downward is frequently larger than the upward move that would result from a piece of positive news. So what might be in store for Sirius as the market digests the news about John Malone abandoning plans for a takeover on Barnes & Noble (NYSE:BKS)?

For those that may have missed this item, a press release on the Barnes & Noble web site noted that:

Liberty Media has invested an aggregate of $204 million in the Company through the purchase of newly issued convertible preferred stock.

Under the terms of the strategic investment, Liberty purchased preferred stock, convertible into approximately 12 million shares or 16.6% (after giving effect to the issuance) of the Company's common stock at a price of $17 per share, and with a dividend rate of 7.75% per annum to be paid quarterly. The investment, which was approved by Barnes & Noble’s board of directors following a recommendation made by its Special Committee, closed today. In light of Liberty’s investment, the parties have ceased discussions regarding Liberty’s previously announced acquisition proposal.

Now that Liberty (LCAPA) will not be spending additional hundreds of millions of dollars to acquire Barnes & Noble, will Malone now focus more of his attention on acquiring Sirius? Will this give the share price of Sirius a boost? It will be interesting to see what happens. Two things are fairly certain. There are likely to be lots more comments on Sirius articles on the Seeking Alpha web site. And those comments are unlikely to be boring.

Disclosure: I am long SIRI. I have $3 January 2012 covered calls against most of my Sirius position. I may add to my long position of SIRI at any time and might close or open covered call positions at any time.