At the Barclays Technology, Media and Global Telecommunications Conference on May 23rd, Liberty Media's (LMCA) Greg Maffei spoke about the company's investment in SiriusXM (SIRI). Not surprisingly, the first set of questions focused on Liberty's investment in SiriusXM. The first issue addressed was the "inefficient capital structure" of SiriusXM and the potential of a Sirius share buyback. It was noted that Sirius was reluctant to do a buyback that would increase Liberty's ownership percentage and Maffei was asked if there was anything Liberty could do to address that concern. Maffei bluntly replied:
Well, there are things that they might ask of us. I'm not sure why we would agree to them.
And, from the perspective of the Sirius investor, it seemed to go downhill from there. The next question followed up with a comparison to Liberty's investment in DIRECTV (DTV) where Liberty had agreed to cap its position under 50%. When asked if a similar arrangement could be made with Sirius, Maffei replied that the stake in DIRECTV came with restrictions and according to the "terms of the charter," increasing its stake above 50% required making a fully funded offer for 100% of the company. As Maffei put it, agreeing to keeping that Liberty stake below 50% was like giving them "sleeves off our vest." With Sirius, he said:
Here we don't have those restrictions. As of March 7th, if we wish to buy over 50 [percent], we can buy over 50, so I don't know why we would concede anything. It's our choice and I don't see it in our interest.
In a previous article it was noted that there are benefits to Liberty maintaining at least half their preferred shares in Sirius. This issue came up in a question about the benefit of converting the preferred shares. Maffei replied:
You can conjure up scenarios in which you might want to convert just less than half and vote your shares one way or another without giving up your rights. And of course, since our shares are net share count, you'd really be looking at something like 26% over 80 - right? - because our 20 would not be converted so our effective share count as of the voting shares would be pretty high. You could imagine scenarios where you might convert a portion, but not all; something like that.
It is possible that one of those scenarios might be part of a plan to demonstrate to the FCC Liberty's intent to take de jure control of SiriusXM. There were some other points that SiriusXM investors should find interesting.
There was a comment about the benefit of SiriusXM being part of a larger media company. Although there were certain cross promotional synergies with Live Nation (LYV), this benefit was downplayed, at least in comparison to other Liberty properties. Maffei noted that it was different for STARZ where there was a benefit when the same company owned the content and the distribution mechanism, providing additional pricing leverage.
As to improvements at SiriusXM, Maffei said "the team there has done an excellent job" and "the business is operating very well." Liberty is excited about what Sirius is doing, but feels the product marketing around Sirius 2.0 could be better articulated.
Summary
Liberty is on a path to take control of SiriusXM, and certainly appears to be in no mood to negotiate with the SiriusXM board. In the past Liberty has said selling their stake in SiriusXM was not an option. Statements at the Barclays conference provided more of the same, and it certainly appears that the only way a SiriusXM share buyback is likely to occur is after Liberty takes control.
Disclosure: I am long SIRI.
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 any of the other companies mentioned in this article.
