The drama between Sirius XM (NASDAQ:SIRI) and Liberty Media (NASDAQ:LMCA) continues with new developments happening faster than most writers can type. Tuesday, in their Q1 conference call Liberty made yet another announcement with regard to Sirius XM.
Early in the day Liberty disclosed that they have entered into a forward purchase agreement for Sirius XM stock. That transaction is set to close in early Q3 and will give Liberty an additional 302 million shares at a price of $2.15. The added shares will increase the Liberty stake in the satellite radio provider t0 45.2%.
The next piece of news happened on the call itself. Liberty Media disclosed that it intends to appeal the FCC decision regarding de facto control of Sirius XM. The company indicated that it has 30 days to file an appeal and intend to do so.
In the FCC decision, delivered last week, the agency indicated that there were some procedural issues with the Liberty Media application for de facto control. In addition, the FCC indicated that the Liberty Media moves were only theoretical at this stage and that the company has taken no action with regard to their intent. In addition, Liberty has offered no concrete details as to its plans. The news issued today regarding a forward purchase agreement which will effectively take its stake to above 45% changes at least one important dynamic Liberty's pursuit of de facto control. Liberty did indicate that it will likely be more specific when the FCC appeal is filed.
During the question and answer session during their Liberty went so far as to say that nominating its own slate at the board level may be an option. Asked whether Liberty really believes in the durability of Sirius XM's satellite radio business, management expressed great enthusiasm. Among the choices available to Liberty are spin-offs, split-offs and a Reverse Morris Trust. Asked specifically about a Reverse Morris Trust, the company stated that it is a function of whether the stake in Sirius XM will perform better in corporate hands or the hands of Liberty shareholders.
The forward purchase agreement that Liberty inked for an additional 5% of Sirius XM's shares is likely a shot across the bow to Sirius XM's CEO Mel Karmazin. Liberty has indicated that they can go out and get 5% at the drop of a hat. With that done, Liberty can appeal the FCC decision, add some detail, and may get the de facto control they seek.
All of these events have to get Sirius XM to the negotiating table. Negotiations on amicable terms could pave the way for the final 5% to 6% needed to gain de jure control and begin the process of a Reverse Morris Trust. If Sirius XM sits down and hammers out a deal, existing management could stay in place and shareholders could get a bit of a premium for the last shares needed by Liberty. Short of that, Liberty can cut yet another deal at no premium and exercise the controls it wants. In my opinion the best situation for Sirius XM shareholders is that Liberty and Sirius XM work together for the remaining 5% to 6%.
The long and short of this is that Liberty will continue their march toward control of Sirius XM. Shareholders of both SIRI and LMCA have a lot to weigh and consider in the next few months.
Disclosure: I am long SIRI. I have no position in LMCA