Liberty Media Makes A Move To Take Control Of Sirius XM

Mar.29.12 | About: Sirius XM (SIRI)

An FCC application on March 20 may be the beginning of a long fight to take over Sirius XM (SIRI) by Liberty Media (LMCA). On the surface it looks like a Liberty fishing expedition. And it looks like a lot of investors are thinking that, listening to the chatter on the street. The application was filed and posted with the FCC today. Here is one exhibit:

Applicant: Contact: ROBERT L. HOEGLE, ESQ.
LIBERTY MEDIA CORPORATION NELSON MULLINS RILEY & SCARBOROUGH LLP
12300 Liberty Boulevard 101 CONSTITUTION AVENUE, NW
SUITE 900
Englewood, CO 80112 USA WASHINGTON, DC 20001 USA
Click to enlarge
Description: Liberty Media Corporation seeks to file the attached Form 312 application seeking consent to the transfer of de facto control of Sirius XM Radio Inc.'s earth station licenses.

What does this mean? How can Liberty transfer control of the licenses unless they already own over 50% of Sirius XM stock? After further research I found the application from Liberty that covers all of the exhibits and different licenses. In some sort of a perceived loophole in the 2009 agreement, Liberty seems to think that the expiration of the agreement on March 6 transfers Sirius to Liberty. This is all found in the six page application:

Liberty Media Corporation (Liberty Media) respectfully submits this application for consent to the transfer of de facto control of Sirius XM Radio Inc (Sirius) and the various space station, satellite earth station, wireless, experimental and other Federal Communication Commission licenses and authorizations held by Sirius or its subsidiaries. Consequently, Liberty Media is filing this application to obtain commission consent to the transfer of de facto control of Sirius from the current shareholders of Sirius to Liberty Media.

Sirius has fired back with a letter to the FCC dated March 22:

Sirius XM disagrees that the expiration of certain provisions in the 2009 investment agreement changes control of Sirius XM and intends to file a formal response seeking dismissal or denial of the applications.

So what does this mean for investors? I wish I had the answer to that. And maybe Sirius will come out with a press release to clear some of this up. On the surface it appears that Liberty is planning a hostile takeover of Sirius. If so, there is one big problem standing in their way. The FCC. This could take years to resolve. And in my opinion the FCC would never fall for something like this and might be quite offended by the assumption that they would.

Rather, this may be an elaborate scheme to scare the average retail investor into selling at a lower price. If so, it is really quite brilliant on John Malone's part. Lower the share price and then scoop it up. However this could easily backfire causing the share price to skyrocket. Because now the cards are exposed and we know for sure that Liberty wants Sirius.

As far as the costs of a lawsuit between Liberty and Sirius, it reminds me of the famous line in the original "Home Alone":

That's OK, we have cash.

Disclosure: I am long SIRI.