An interesting scenario is developing in the world of Sirius (SIRI). For a while now, Liberty Media (LMCA) has been trying to gain control of Sirius XM. This could pose a serious threat to those holding SIRI shares.
Speculative investors are constantly looking for companies that could possibly be targets for a takeover bid. What these investors hope for is that the acquiring company will offer a premium over the acquired company's value to drive the share price. This happened on April 19th, as GlaxoSmithKline (UK:GSK) made a bid to take over Human Genome Sciences (HGSI). The day the offer was made, HGSI just about doubled. There are a couple problems with this scenario when it comes to Liberty and Sirius.
Liberty is already in great position to take control.
On May 9th, Liberty announced that it had increased its stake in Sirius XM by 60.35 million shares. This gives them control of 46.2% of the company. They are obviously interested in purchasing more shares (up to $2.19 per share), and with a recent sell off taking shares of SIRI into the $1.90 range, the likelihood of them getting more is looking good.
Liberty already controls 5 of the 13 seats on the board, and looks to be poised to take another soon. According to Spencer Osborne, another Seeking Alpha contributor, a 53.8% share would justify a 7th and majority place on the board, which does not seem out of the realm of possibility. With shares at a lower level now, I am sure that investors would be more than happy to unload shares to Liberty, and this will benefit Liberty.
CEO Mel Karmazin is dumping shares.
It was reported that Sirius's CEO has sold 13.7 million shares this week alone. He has, on more than one occasion this month, been selling. This does not look good for Sirius. Anyone who has been following Sirius knows that they have been fighting against Liberty taking control tooth and nail. The FCC ruled against Liberty taking de facto control. If Karmazin were truly committed to maintain control of the company, he would not be putting his shares out there to be bought. Is this a sign that the CEO is ready to give in?
Sub $2 price begs for Liberty control
Liberty Media has demonstrated that they are willing to buy SIRI shares anywhere south of $2.14. The longer the shares stay below this level, the higher the likelihood of a takeover. Investors should be concerned that there will not be a spike from a takeover bid, since shares seem to be so easy to come by. It looks like they may be able to take control without much of a fight.
I think investors who are holding on for a price bump from a takeover bid are going to be disappointed when this is settled peacefully around the same price where it is trading now. There is not much hostility going to be necessary for this type of hostile takeover.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.