SiriusXM (SIRI) filed an 8k on May 31st regarding Liberty Media's (LMCA) petition to the FCC for reconsideration of its application for de facto control of the SiriusXM licenses. For those unfamiliar with this situation, Liberty Media filed an application for transfer of de facto control of the SiriusXM licenses on March 20, 2012. The FCC dismissed the application on May 4th based on procedural grounds, and Liberty Media filed for reconsideration on May 30th.
The basis for the FCC dismissal was that Liberty Media had not proven "that a waiver of basic filing requirements" was warranted because Liberty Media not shown that it "intends to take actions, such as conversion of preferred to common stock and installation of a board majority, that would constitute exercise of de facto or de jure control." Liberty Media's petition for reconsideration laid out plans as to how it would take de jure control, including recent purchases of SiriusXM common stock, a partial conversion of its preferred shares, and potential future purchases of additional common stock. Liberty Media also stated that it would take actions, as soon as practicable, "to cause the nomination and election of persons to Sirius' Board of Directors" so that a majority of "the Sirius Board of Directors will be persons nominated by Liberty Media."
In its 8k, SiriusXM wrote "We are evaluating the Reconsideration Petition." Based on the successful filings by SiriusXM in response to Liberty Media's initial application, it is reasonable to expect SiriusXM to file a response.
SiriusXM Position
SiriusXM stated that Liberty Media has not notified SiriusXM of its intent to call for a special meeting or election. SiriusXM further stated that a special meeting could be called before the next annual meeting "by our secretary or any other officer if they are so directed by not less than two members of our Board of Directors or our Chief Executive Officer." Furthermore,
No such direction has been received to date. Stockholders are not permitted to call a special meeting and, absent a special meeting, cannot make a proposal with respect to the nomination of directors other than in connection with the next annual meeting.
What's next?
There will probably be a series of FCC filings by SiriusXM and Liberty Media attacking and defending the various applications and petitions, and eventually the FCC will issue another ruling. If it rules that Liberty Media can file without the requisite passwords, there would probably be a period for public comment and an eventual decision on whether or not to grant de facto control to Liberty Media.
Assuming Liberty Media eventually is granted de facto control, Liberty will have no problem having two members of the SiriusXM Board of Directors direct the secretary to call a special meeting since Liberty Media Chairman John Malone and CEO Greg Maffei are both directors on the SiriusXM board. At that point, either Liberty Media will go to an outright majority position or decide to wage a proxy fight.
Summary
The one surprising revelation by SiriusXM in its filing was the following statement:
We have been engaged in discussions with Liberty Media to explore possible transactions with respect to its ownership interest in Sirius, although we have not reached agreement with respect to a specific transaction that would be mutually beneficial to both our common and preferred stockholders. There is no assurance that these discussions will result in any specific action or transaction.
While no indication is given as to when these "discussions" took place, to the best of my knowledge, it is the first time that either company has officially acknowledged that any discussions had occurred. That the two parties may be talking to each other rather than communicating through SEC and FCC filings would be good news for Investors. However, those looking for additional information about these discussions may be disappointed. The closing sentence on the 8k was:
We do not expect to disclose developments with respect to these discussions.
Once more, investors will be left to guess what is taking place behind closed doors.
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 Liberty Media.
