Sirius XM Is Outperforming: While Liberty Insiders Are Selling

Jul.26.12 | About: Sirius XM (SIRI)

Many investors are selling their Sirius XM (SIRI) stock, and trading it for Liberty Media (LMCA) in anticipation of a Liberty takeover which might pay Liberty shareholders a premium. Others are holding on to their Sirius shares with both hands thinking that Sirius shareholders will get a premium. I wrote an article which looked at the pros and cons of trading in Sirius shares, but I missed something really big. I always check Twitter and the message boards looking for any breaking news, or other stories that I might have missed. And today I found something which completely shocked me. I am sure the Sirius Bears who have now become Liberty Bulls will have some sort of explanation for this, and I am looking forward to a lively discussion in the comment section. What is so shocking? John Malone has been selling some of his Liberty stock, along with other Liberty insiders. According to Yahoo Finance, here are all of the insider transactions since December, when the forward agreement to purchase over 300 million shares of Sirius was first negotiated:

Date Insider Shares Type Transaction Value*
Jul 5, 2012 MALONE JOHN COfficer 143,000 Direct Disposition (Non Open Market) at $0 per share. N/A
Jun 21, 2012 ROMRELL LARRY EDirector 3,465 Direct Disposition (Non Open Market) at $0 per share. N/A
Jun 15, 2012 ROSENTHALER ALBERT EOfficer 196 Direct Disposition (Non Open Market) at $84.46 per share. 16,554
Jun 15, 2012 SHEAN CHRISTOPHER WOfficer 138 Direct Disposition (Non Open Market) at $84.46 per share. 11,655
Jun 15, 2012 TANABE CHARLES YOfficer 351 Direct Disposition (Non Open Market) at $84.46 per share. 29,645
Jun 15, 2012 MALONE JOHN COfficer 521 Direct Disposition (Non Open Market) at $84.46 per share. 44,003
May 11, 2012 GILCHRIST MALCOLM IAN GRANTDirector 300 Direct Sale at $89.88 per share. 26,964
Mar 26, 2012 TANABE CHARLES YOfficer 12,450 Direct Option Exercise at $3.57 - $54.13 per share. N/A
Mar 26, 2012 TANABE CHARLES YOfficer 6,643 Direct Disposition (Non Open Market) at $89.50 per share. 594,548
Mar 26, 2012 TANABE CHARLES YOfficer 5,807 Direct Sale at $89.50 per share. 519,726
Mar 15, 2012 ROSENTHALER ALBERT EOfficer 195 Direct Disposition (Non Open Market) at $88.18 per share. 17,195
Mar 15, 2012 TANABE CHARLES YOfficer 351 Direct Disposition (Non Open Market) at $88.18 per share. 30,951
Mar 15, 2012 MALONE JOHN COfficer 543 Direct Disposition (Non Open Market) at $88.18 per share. 47,881
Mar 15, 2012 SHEAN CHRISTOPHER WOfficer 137 Direct Disposition (Non Open Market) at $88.18 per share. 12,080
Mar 1, 2012 MALONE JOHN COfficer 2,500 Direct Disposition (Non Open Market) at $0 per share. N/A
Feb 27, 2012 TANABE CHARLES YOfficer 12,509 Direct Sale at $87.82 - $88.95 per share. 1,106,0002
Feb 27, 2012 TANABE CHARLES YOfficer 20,319 Direct Disposition (Non Open Market) at $87.99 - $88.93 per share. 1,797,0002
Feb 27, 2012 TANABE CHARLES YOfficer 32,828 Direct Option Exercise at $17.26 - $54.13 per share. N/A
Feb 27, 2012 ROSENTHALER ALBERT EOfficer 14,261 Direct Disposition (Non Open Market) at $0 - $88.14 per share. N/A
Feb 27, 2012 ROSENTHALER ALBERT EOfficer 13,000 Direct Sale at $87.98 per share. 1,143,740
Feb 27, 2012 ROSENTHALER ALBERT EOfficer 26,076 Direct Option Exercise at $3.57 - $54.13 per share. N/A
Jan 4, 2012 TANABE CHARLES YOfficer 1,286 Direct Sale at $77.50 - $77.99 per share. 100,0002
Dec 30, 2011 MAFFEI GREGORY BOfficer 53,264 Direct Disposition (Non Open Market) at $0 per share. N/A
Dec 29, 2011 TANABE CHARLES YOfficer 1,143 Direct Disposition (Non Open Market) at $0 per share. N/A
Dec 29, 2011 TANABE CHARLES YOfficer 17,742 Direct Option Exercise at $3.57 per share. 63,338
Dec 29, 2011 TANABE CHARLES YOfficer 9,914 Direct Sale at $77.50 - $77.99 per share. 771,0002
Dec 29, 2011 TANABE CHARLES YOfficer 7,828 Direct Disposition (Non Open Market) at $77.50 - $77.99 per share. 609,0002
Dec 15, 2011 SHEAN CHRISTOPHER WOfficer 737 Direct Disposition (Non Open Market) at $74.01 per share. 54,545
Click to enlarge

Data provided by EDGAR Online

* = Where indicated, some values are estimates.
1= Potential proceeds estimated by the filer.
2= Estimated based on the average of multiple prices reported.
3= Multiple dates reported. Most recent date shown.

Currency in USD.

Click to enlarge

After looking at the list, a lot of readers will ask what a disposition at $0 is. This is usually a gift to someone. Do not let the low share counts throw you. This is not Sirius XM. When Malone disposed of his 143,000 shares this month, on July 5, Liberty stock closed at $91.27 a share, for a total value of just over 13 million dollars. Why do this when there is a possible premium coming? And why would so many Liberty insiders be selling and not buying like other investors that expect a premium on a possible Sirius takeover?

What is really interesting is the fact that Sirius CEO Mel Karmazin has been criticized in article after article for selling half of his shares as part of his estate and charity planning. Yet I have not seen one article about these Liberty insider sales. I understand insiders selling their shares, but not when they are expecting the premiums that some analysts are predicting.

Chart forSIRIUS XM Radio Inc.

As you can see from the chart above, Sirius and Liberty have an almost identical pattern compared to the major market indexes. However Sirius has been outperforming Liberty for the last two years. And Sirius stock has done much better than most of Liberty's other investments:

Chart forViacom, Inc. (<a href=

A lot of investors are torn as to whether Liberty shareholders should even get a premium from a possible Sirius takeover. First of all, Liberty loaned Sirius money in 2009 when it was close to bankruptcy. And in a transaction that almost mimics the ABC show Shark Tank, Malone offered $12,500 for 40% of Sirius. I must admit that I have never seen the Sharks make that low of an offer. However, rarely does the Shark come to the company three years later wanting more money. Especially if their $12,500 investment is now worth $5.46 billion (which I have never seen happen on the show either). And consider the company is outperforming the Shark's company. Personally I think Liberty has gotten enough premiums from Sirius shareholders over the last several years. And I believe that Mel and the board agree. This is why they have not been willing to go along with the Liberty bid for de facto control of Sirius via the FCC.

Sirius is the "pure play" in this scenario. It is making the most money for shareholders, and there is no reason to think that it won't continue to do so. Earnings will be announced on August 7, and I expect them to be record breaking.

Disclosure: I am long SIRI.