There was new SEC Form 4 filed late last night confirming that Liberty (NASDAQ:LMCA) is indeed on a major buying spree. The company made major purchases of Sirius XM (NASDAQ:SIRI) stock over the past three days beginning on August 10. The total shares came to 89.97 million, and Liberty paid roughly $2.50 a share. The company also has initiated another forward agreement with a third party for an additional 41,087,753 shares, which will expire October 11. This will give Liberty another 131 million shares, which is about half of what I had estimated that it would take to get to 50.1%. This should bring Liberty to roughly 48%.
Last week I wrote an article saying that the recent jump in the share price of Sirius XM could easily be due to Liberty Media buying shares on the open market. Many investors agreed, based on the widely reported announcement that Liberty will spin off Starz to raise cash to purchase the satellite radio company:
This story sends a message to investors that Liberty may be losing confidence in their FCC application for de facto control of Sirius. Is the company accepting the fact that it will have to either pay a premium to Sirius shareholders or buy enough shares on the open market to reach 51% ownership. Wednesday the stock was sitting comfortably between $2.48 and $2.50 after another big announcement that Moodys had upgraded Sirius. With huge volume Tuesday and Wednesday totaling over half a billion shares, this looks like it could be the new normal. And I would not be surprised at all to see an SEC filing that Liberty is buying Sirius stock on the open market, or that there is a third party agreement.
See the chart below to understand how this all unfolded over the last several days. There was an outstanding earnings report on August 7 followed by the Starz announcement that same day. Then Liberty made the huge purchases on the 10th, 13th and 14th. The price has jumped from $2.17 to $2.54 in just one week. Ironically, the volume is lower on the three days that Liberty was buying, compared to the two days after the earnings announcement:
What I don't understand is why Liberty would tip its hand like this? Because of the announcement that Starz would be sold to get the money to pay for Sirius, a lot of investors jumped in and bought almost half a billion shares on the 7th and 8th, which sent the price above $2.50. Basically they beat Liberty to the punch using the information that Liberty itself released. There were lots of opportunities before that to get a much cheaper share price. And then why not go for 51% instead of 48%? Now that the company has filed with the SEC, the secret is out, and everyone knows that Liberty is buying, and so the price will probably continue much higher, because the company must somehow get its hands on another 3% of Sirius.
I am going to assume that either the two companies have come to some sort of an agreement or middle ground which will allow Liberty to pick up the rest of its shares through a buyback, or the FCC has notified them that they can not allow the application to be approved unless Liberty owns over 50%. And there may be an unrelated business matter concerning one of the companies that brought on this sudden buying frenzy. The public may never know what caused this. But one thing is for sure: so far this has accomplished nothing meaningful, except to raise the share price. The two companies are still in limbo until they either come to an agreement, or the FCC rules one way or another. Because even if Liberty buys another 3% of the company that will not guarantee FCC approval. This is why I think there has been some type of (hidden) activity that brought this on.
Should you buy and get in on this deal? There is always risk involved in any situation. For instance Liberty has plenty of time. The company could wait for six more months to buy the needed 3%. Or they could sell some of their new purchases and sink the stock price. We have no idea what the plan is, but I can promise you that there is a plan.
Disclosure: I am long SIRI.