A comment by Seeking Alpha member TexasRazz that was intended to provoke SiriusXM (SIRI) longs concluded "I still have those PALM shares." Yes, I get it is a joke, but I couldn't pass up the opportunity to emphasize an important point. And, no, the point is not that Palm was a hot product that is now irrelevant.
Following revelations by Liberty Media (LMCA) that it has been increasing its ownership of Sirius, there have been many comments made and questions asked that are similar to the following:
- I'm not going to sell my shares; or nobody can force me to sell my shares.
- What if I don't want to sell my Sirius shares? Can I be forced to sell them? Will Sirius stop trading?
To illustrate what can occur, it might help to look at what occurred with Palm. Palm Computing was a division of US Robotics. It was eventually sold to 3Com and later 3Com spun it off to 3Com shareholders. Palm was later split into two separate companies - one for hardware and one for software. Eventually all three companies disappeared, with two of the three companies winding up at Hewlett-Packard (HPQ). What happened to the shares?
They were all taken out with all cash tender offers. If your shares were in street name at your broker, one day you went to bed owning shares and the next day you woke up with cash. There really wasn't any choice offered. If TexasRazz still has those Palm shares in the form of a paper stock certificate, he can't trade them. He can still turn them in to his broker and get the cash, but he won't get any more today than he would have by turning them in a few years ago.
For Sirius shareholders, your fate is - or more correctly, soon will be - in the hands of Liberty. If they want your shares badly enough, they will make an all-cash tender offer and you won't have much say in the matter. Far more likely is that Liberty will acquire a majority stake and make Sirius a majority controlled subsidiary. In this case, you won't be required to sell and the shares will continue to be traded.
My crystal ball gets really cloudy at this point. It's not only about the timing of the Liberty actions subsequent to going to majority, but also the nature of such actions. Liberty CEO Greg Maffei is not tipping his hand on the eventual direction although he has stated that he thinks buying the last share can be very expensive. He has spoken of Reverse Morris Trusts and converting the preferred shares and spinning them to Liberty shareholders.
A few months ago, Maffei said the following, "We have what we view are some core assets at Liberty Media; Sirius, Live Nation, the things we've done with Barnes and Noble." If Liberty considers Sirius a core asset and wants to control the Sirius cash and free cash flow, it would seem to argue in favor of keeping Sirius rather than spinning off their stake to LMCA shareholders.
If this is the case, it seems to make sense that Sirius will eventually be folded into Liberty. This would require an all cash tender, a share exchange for Liberty shares or a combination of cash and shares. In that situation, the shares could disappear, regardless of whether one wants to sell or not.
Additional disclosure: I have $3 January 2013 covered calls against most of my Sirius position, as well as some $2 and $2.50 January 2013 covered calls. I may initiate (or close) a buy stock/sell option position in Sirius, discussed in another article, at any time. I have no positions, or any plans to open positions in the next 72 hours, in Liberty Media.
