July 11th is the settlement date of Liberty Media's (NASDAQ:LMCA) forward contract to take possession of 302 million shares of Sirius XM (NASDAQ:SIRI). The forward contract price? $2.15. This is currently a premium over the $2.03 per share market price today (Tuesday), and likely a much higher premium when you consider that there are fees involved within the forward contract itself.
Some commenters have asked, why would Liberty complete this transaction? Why not just buy shares in the open market if they are now cheaper? While at first glance this may seem like a good idea, the reality is that buying pressure to the tune of 302 million shares of Sirius XM would stand a very good chance of driving the share price skyward in short order, especially as word got out that Liberty was buying. And it would get out. Current average volume under 50 million shares per day would make it impossible for Liberty to buy sufficient quantities in the open market quietly. After a couple of days, a form 4 filed with the SEC would surface indicating that Liberty had increased its position.
It may seem reasonable to expect Liberty might have backed out of its purchase, but in all honesty it is very unlikely that it did. Again, Liberty is required to file a form 4 after taking possession of these shares within the forward contract, and when it does so, it should be quite evident at this link here. Investors should keep in mind that Liberty has a couple of days to file, so the absence of a filing immediately does not necessarily mean that Liberty did not complete its transaction.
So, once this forward purchase is complete, where does the share price of Sirius XM go from here? If you have followed the recent news, Sirius XM just reported over 600,000 subscriber additions for the second quarter, as well as upping its guidance for the full year to 1,600,000 new subs. Is this conservative guidance still? Yes. Sirius XM is chugging along independent of Liberty's purchasing, and doing quite well. If you are investing on the fundamentals of Sirius XM, then purchases at these prices may seem like a steal towards year's end and beyond.
Investors also still await a response from the FCC regarding Liberty's second request for de facto control. In my opinion, this is merely a loose end to be tied off. Liberty will eventually go to control, but how they accomplish it will have much to do with the FCC's response. A refusal again will likely push Liberty to buy more shares of Sirius XM and go to de jure control, or at least to over 51% with their preferred stake. As a Sirius XM investor, I see the writing on the wall that Liberty will take control, and would much prefer this to be over and done with sooner rather than later. I'm expecting another refusal, and I'm expecting Liberty will have to take control of the board to show they are in control of Sirius XM. This may add short-term buying pressure to Sirius XM stock.
The bottom line? While all eyes are on Liberty, I think this is a great time to initiate, or add to one's Sirius XM position near the $2 mark. With the newly established uptrend from a technical standpoint, Sirius XM's performance as a company, and Liberty Media's interest in establishing a controlling stake and what that may mean, I'm comfortable being long Sirius XM.
Disclosure: I am long SIRI.
Additional disclosure: I may initiate a long position in LMCA at any time.