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It is amazing what can happen when someone reads the headline without bothering to delve into the fine print. This is exactly what transpired today when Liberty completed some of its split-off paperwork by moving its preferred shares in Sirius XM (SIRI) to the newly formed split-off company. The notification came in the form of an SEC filing.

On September 23, 2011, the Reporting Person completed its previously announced redemption (the "Split-Off") of all of the outstanding shares of two of its tracking stocks, Liberty Capital and Liberty Starz, for shares of new tracking stocks of Liberty Media Corporation, a Delaware corporation (formerly known as Liberty CapStarz, Inc., "New Liberty"). In connection with the Split-Off, the Reporting Person's beneficial ownership of the Convertible Perpetual Preferred Stock, Series B-1 was transferred to New Liberty.

I had several emails asking me, "What happens now that Liberty has converted its preferred into common?" The answer is that Liberty did not convert its shares at all, it simply moved the shares to the newly formed company. More in-depth reading of the document would have saved investors a lot of angst.

The situation relating to Liberty is not that much different than it was a few weeks ago. It still has its stake, and has not converted any shares. Its preferred still equates to 2,586,976,761 common shares upon conversion, if and when the company decides to convert. They key is that, at this point, no such conversion has happened.

What investors do need to consider is that the time is coming when Liberty may make a move regarding Sirius XM. I believe that the most likely situation is a Reverse Morris Trust, which will, in effect, mean that Liberty will need to make a move to gain controlling interest in Sirius XM. If it does that, it can then conduct an RMT to cash out its position in Sirius XM in a tax-effective manner.

What investors need to be aware of is that Liberty has options and an agenda that may or may not align with the interests of Sirius XM. Some moves Liberty could make could be very advantageous to SIRI investors, while others may be a lot less friendly. It is one reason why I suggest that SIRI investors consider those paths, monitor the situation, and perhaps even consider methods to minimize the potential volitility involved.

The bottom line is that Sirius XM is continuing business as usual.

Source: Liberty SEC Filing Causes Sirius Investor Confusion