Investors in both Sirius XM (SIRI) and Liberty Media (LMCA) should be well aware of what is an ongoing battle for control of Sirius XM. In the middle? The FCC, which has the ultimate say on whether or not Liberty Media is allowed to take de facto control of the satellite radio company.
In an informative article released by Reuters, pointed out to me by Seeking Alpha user Roxieanne, there are some bits of color given to the ongoing battle for control that I found to be rather interesting. For some time now it has been speculated as to what Liberty Media's true intentions are surrounding Sirius XM, but often much can be learned from various bits and pieces that those directly involved choose to let slip in conversation.
For instance, take John Malone's quote on Thursday from the article above:
"There are three parties in this deal - Sirius and its shareholders, Liberty and its shareholders, and there's me personally because I am the controlling shareholder in Liberty," said Malone. "So when you ask yourself, 'Should there be a control premium and if there is one, who should get it,' don't forget about me."
To me it's quite obvious what Malone is saying here, and in my opinion what he says is rightfully so. As the controlling share holder in Liberty Media, and as Liberty Media can easily become the controlling share holder in Sirius XM, who is the "#1" that John Malone will be looking out for in these dealings? Simple. It's John Malone. While Sirius XM is the prize, in this case, investors should understand that the Sirius XM ball really is in Liberty's court. Likewise, since the Liberty ball is in Malone's court, John Malone can (and will) be looking after John Malone first and foremost.
This is the reality of the situation, and while investors of Sirius XM may not like this fact, it's unavoidable. Does this mean Sirius XM investors will be taken to the cleaners to have any value yanked out from under them? Not really. I believe there is enough "premium" to go around for both parties. While it's hard to say which side will ultimately get the better deal, some individuals like fellow Seeking Alpha author Spencer Osborne are choosing to play both sides of the equation, 50 / 50. This is probably the most reasonable play if an investor wishes to hedge one against the other. Go in partially on Sirius XM, and partially on Liberty Media.
Investors should keep in mind, though, that Liberty Media is a conglomerate of other companies. While Sirius XM is the largest of those positions, there is the possibility that Liberty receiving a better deal may not translate into a greater appreciation in Liberty stock because of this. If the "premium" is nearly balanced it could very well result in greater appreciation of Sirius XM stock.
Another interesting comment from the article above, points to informal discussion between John Malone and FCC chairman Julius Genachowski:
Malone said that he had dinner with FCC Chairman Julius Genachowski, but declined to comment on what they discussed, saying only that Liberty would modify its filings to do whatever the agency says in order to gain control.
"We've asked (the FCC) to affirm we have de facto control," Malone said. "Once they do that, there is no barrier to us having actual hard control."
It appears that Malone is working directly with the FCC on this issue in order to discuss ultimate plans and to get a true sense of what Liberty will need to do in order to obtain control of Sirius XM. It's also quite obvious that Liberty is willing to follow the FCC's guidelines and do what they request to obtain this control. Obviously, Liberty would prefer to not have to take their stake to 51% and go to de jure control, and instead would prefer the de facto route if the FCC will open the door for them in that regard. A Reverse Morris Trust appears to be the preferred method if and when de facto control is granted:
"As the situation sits, we may never actually go into control if we were to reach an agreement and spin off the company," Malone said.
On top of Liberty working with the FCC, it appears Liberty is also working with Sirius XM :
Malone said Liberty and Sirius were currently engaged in negotiations over control and how large the premium would be.
While it is unknown how all of these discussions are progressing, it's very important to the stability of the share prices that they are in fact, ongoing. A hostile environment does not make for comfortable investors, and can weigh upon the value of a stock. As we draw closer to the denouement, it is preferable that all sides can come to the table and at the end of the day stand up and shake hands having worked out an agreement together.
Disclosure: I am long SIRI. I may initiate a long position in LMCA at any time.