At the recent Citi Internet, Media & Telecommunications Conference, Liberty Media (NASDAQ:LMCA) (NASDAQ:LMCB) (NASDAQ:LMCK) CEO, and Sirius XM (NASDAQ:SIRI) Holdings Chairman, Greg Maffei discussed Liberty Media's three main businesses - a 61% stake in Sirius, 100% ownership of the Atlanta Braves, and the remainder of Liberty, which is mostly its 34% of Live Nation (NYSE:LYV).
Late last year Liberty filed an S-4 Registration with the SEC to create three series of stocks to track the financial performance of these businesses. As an investor in Sirius, I find it very useful to listen to Maffei and get his perspective on Sirius and how Liberty's plans might impact the price of the stock of Sirius.
Despite the fact that Sirius makes up the bulk of the net asset value of Liberty, most of the discussion focused on the Atlanta Braves, probably because it is more difficult to place a value on that particular asset. As most investors in Liberty are aware, Liberty has a history of making moves that were designed to limit taxes. In that context, there were two particular statements about the Braves asset that were interesting.
The first was that if Liberty were to sell the Braves, that due to taxes, Liberty "would probably be unlikely to be cash sellers." The second was an explanation of why 20% of the Braves asset was to be included in the Liberty Media tracker. Maffei stated that if Liberty wanted to raise capital, it could sell that 20% stake tax-free. And, while the company had no immediate plans for capital, Liberty believed having the ability to write big checks enables them to take advantage of situations where a large injection of cash is required as occurred with Charter (or even Sirius back in 2009).
And, if Liberty is interested in writing big checks, it's reasonable to conclude that it will find a way to utilize its largest asset - 3.1 billion shares of Sirius. Previously Liberty had sold $500 million worth of Sirius shares back to Sirius as part of the share repurchase program. Maffei indicated that selling shares back was still an option.
Perhaps more important for Sirius investors, when he was asked "does this just set up a clean way for this tracker just to combine with publicly listed SIRI?" Maffei answered, "Possibly," and continued:
I think ultimately the longer term perspective is it's likely that Sirius ends up being 100% controlled by Liberty.
And when asked about whether a takeover would be easier to do, Maffei stated that a combination was previously tried and "it didn't work, so we'll see."
Maffei also was then asked about the Connected Vehicle Services business of Sirius, and his initial response was:
I think we made great traction in building partnerships and good traction in building a platform and we have no business model yet for how we're going to get paid, or what it will ultimately mean. But I do think that there will be a market for embedded services with car companies and we will be in very good shape to do something with them....
When pressed a bit further by a comment that "the market is very nervous that this whole connected car thing is a negative for Sirius," Maffei was quick to state, "I think it's a positive; ... definitely is..." While Maffei is positive, as an investor I would be much more optimistic if he hadn't stated "we have no business model yet for how we're going to get paid."
One other comment that Maffei made that some may feel is important had to do with leverage. Some of the analysts had expected that leverage would quickly rise to 3.5x or 4x to fund accelerated share buybacks. When asked how investors should think about the leverage, Maffei stated they should think about it as moving up "slowly." That will have an impact on certain per share metrics modeled by most analysts.
While the overall down market has put pressure on the shares of Sirius, Maffei's comments probably didn't do much to inject any enthusiasm for the stock. The fact that he said to think of Liberty eventually owning 100% of Sirius, coupled with the fact that Liberty didn't offer much of a premium in its previous takeover offer made in January of 2014, would seem to dash any hopes of a sale to a third party or significant takeover premium.
Conspiracy theory advocates are likely to complain that Liberty and Sirius are trying to hold the price of the stock down in order to improve the efficiency of the buyback. Perhaps, but if Liberty plans to attempt another takeover to get to 100% ownership, then a significant takeover premium isn't in the cards, and if leverage will only be moving up slowly, and if the company doesn't have a business model as to how they will get paid for the connected vehicle business, why should investors bid up the price of the stock?
Disclosure: I am/we are long C, LYV, SIRI.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may sell shares of Sirius or write covered calls against my Sirius position or buy shares of Liberty Media at any time.