After the market closed on Tuesday Liberty Media (LMCA) announced via an SEC filing that it has once again increased its stake in Sirius XM (SIRI). This time Liberty added about 40 million shares over 3 trading days to bring its total stake to up to 48.8%.
Liberty recently withdrew its application for de facto control of Sirius XM and filed a new application seeking permission from the FCC to take de jure control. Subsequent to that announcement I speculated that Liberty could have all of the shares it needed if it had a third forward purchase contract in place.
With this latest news, Liberty is about 75 million shares away from an actual 50% stake. The amazing thing is that Liberty was able to accomplish this latest maneuver without propelling the stock upward. On Monday almost 100 million shares changed hands with Liberty accounting for 30% of the volume and the stock stayed between $2.53 and $2.54 all day!
So what does all of this mean? Actually it is still my belief that Liberty Media has a third unannounced forward purchase contract. The reason I believe this is because it makes sense for the company to have all it needs in place prior to an FCC decision regarding permission for de jure control. Having a forward purchase contract in place would allow Liberty to make the final steps without having to go into the open market.
When Liberty applied to the FCC for de jure control, it stated that it could convert its preferred shares into common within 60 days of Commission approval. The reality is that Liberty could convert these shares at any time. Why 60 days then? If you look at past forward purchase contracts Liberty has always had a settlement date that was 60 days after the third party in the contract completed its hedge and the contract was made public.
Having a balance of shares tied to a forward purchase contract allows Liberty to avoid open market after the FCC news breaks, and then plan its preferred conversion to coincide with the settlement of a forward purchase contract. In effect, if the FCC approved on September 1st, Liberty would not need to take any action until November 1st, when it would suddenly move from about 49% to over 50%.
What we can all learn from this is that Liberty can indeed buy substantial amounts of shares without moving the stock price substantially. If you are looking for a pop on Liberty buys, it might not happen. Liberty could well have made its moves during the doldrums of summer trading inactivity.
Strategically which one is a better play now, Liberty or Sirius XM, is getting more and more interesting. It is possible that Liberty will rely on open market purchases to wrap this up, but from what I see, it can literally do this in stealth mode now if it has to.
Let the Reverse Morris Trust discussion begin again. Hold on tight, this is just getting statrted!