When the price of any stock begins to fall, it's time to re-evaluate that company. So when Sirius XM (SIRI) slid down to $2.33 from a 52 week high of $2.64, I decided to take a closer look. On August 3, it was selling for $2.13 a share, and then suddenly skyrocketed to $2.64 in two weeks. Over the last month it has gradually come back down. There are probably hundreds of reasons why it has dropped. But as I wrote in another article it is probably just an old fashioned correction.
So what is the big money doing? Judging from the huge volume last month, I think they are all in. The latest figures from NASDAQ show that there are 451 institutional holders. And they own a whopping 2,000,450,223 shares. That's right, they own over two billion shares. According to Yahoo finance, these are the top Institutional owners at the beginning of this quarter:
|UBS AG||304,005,154||7.93||562,409,534||Jun 29, 2012|
|VANGUARD GROUP, INC.||169,556,024||4.42||313,678,644||Jun 29, 2012|
|WELLINGTON MANAGEMENT COMPANY, LLP||129,204,932||3.37||239,029,124||Jun 29, 2012|
|S.A.C. CAPITAL ADVISORS, LLC||114,479,536||2.99||211,787,141||Jun 29, 2012|
|TPG-AXON CAPITAL MANAGEMENT LP||87,323,500||2.28||161,548,475||Jun 29, 2012|
|BlackRock Institutional Trust Company, N.A.||87,030,785||2.27||161,006,952||Jun 29, 2012|
|Blue Ridge Capital LLC||78,800,000||2.06||145,780,000||Jun 29, 2012|
|Coatue Management, LLC||60,293,655||1.57||111,543,261||Jun 29, 2012|
|OMEGA ADVISORS INC.||58,532,503||1.53||108,285,130||Jun 29, 2012|
|SCOUT CAPITAL MANAGEMENT LLC||50,000,000||1.30||92,500,000||Jun 29, 2012|
Liberty Media (LMCA) owns the equivalent of around 3.2 billion shares of Sirius XM with its forward agreement, preferred shares, preferred converted shares, and common shares. In case you missed it, the company converted very close to half of its preferred shares on Monday. Most analysts think this is an attempt to get the FCC to take notice that Liberty really will buy enough shares to go over 50%.
However, at the time of this writing, the FCC still has not budged. As I mentioned in an article on Friday, Liberty filed for de jure control of Sirius, but according to the FCC website, the application has still not been "put up for public notice" which both Sirius CEO Mel Karmazin and Liberty CEO Greg Maffei think is unusual:
August 17, Liberty filed with the FCC for de Jure control of Sirius XM:
|SES-T/C-20120821-00776||Trans of Control||LIBERTY MEDIA CORP||E000158||08/17/12||Unblocked||Site|
|SES-T/C-20120821-00777||Trans of Control||LIBERTY MEDIA CORP||E110172||08/17/12||Unblocked||Site|
|SES-T/C-20120821-00792||Trans of Control||LIBERTY MEDIA CORP||E040363||08/17/12||System Entry||Site|
There have been a lot of numbers thrown around as to how many shares (or the equivalent) Sirius has. According to the 10Q filed last month, there are 6.506 billion shares. Most financial sites only list the common shares and do not include the Liberty preferred B1 shares in the totals. This has sparked a rumor that as Liberty converts to common shares, the stock will be diluted. That is actually really just a rumor. When the company figures the earning per share, it takes all of the shares into consideration, including Liberty's chunk.
But considering the fact that the top institutions own over two billion shares, and Liberty owns around 3.2 billion, that means that there are only 1.3 billion shares owned by everyone else, including Sirius XM employees. Liberty and the 451 institutions now control 80% of the company and that amount will go up as Liberty edges over 50%. So when Liberty takes control of the Sirius board and begins to buy back the shares, that pile will begin to shrink dramatically. Chatter on the street is "all over the map" concerning how much the buy-backs will be and for how long. If the first round is a billion shares in the next few months, which is not wild speculation, but very doable, then most of the retail shares will be gone before spring of 2013.
Now the argument to this is that the institutions could sell. That is possible, however, my research has shown that they are the very last to sell with a buy-back on the horizon. Some investors have strong hands, but institutions have an iron grip. Because they know as the little retail pile dwindles, the price per share will jump dramatically and according to one writer, institutions are driven by share price and earnings:
Changing investor profiles: A more debatable reason is that the expansion of hedge funds and private equity have changed investor profiles in the stock market. These investors tend to be focused on price appreciation (rather than dividends) and often are unwilling to wait for their cash.
Testable hypothesis: Companies that have activist institutional investors or are held by hedge funds/private equity holdings should be more likely to buy back stock.... I don't see any reason to believe that these shifts will be reversed in the near future. In fact, I will go further. I think that you will see companies across the globe shift to buybacks or at least to more flexible dividend policies (tied to earnings).
Do not sell the retail investors short. There are a lot of them that bought tens of thousands of shares three to four years ago when the price was under a dollar a share, and some of them are the toughest investors of all. They held even with the threat of bankruptcy and even bought more. That takes guts of steel. Most of those investors will probably keep the shares for their great-grand children and there is reason to think that Liberty Chairman John Malone will do the same thing, which brings up the fact that Liberty has very few retail investors. Actually, 93% of the owners are insiders and institutions. So don't expect them to sell Sirius shares when and if it's spun off.
|% of Shares Held by All Insider and 5% Owners:||9%|
|% of Shares Held by Institutional & Mutual Fund Owners:||85%|
|% of Float Held by Institutional & Mutual Fund Owners:||93%|
|Number of Institutions Holding Shares:||384|
So it really is just a case of supply and demand. If there are no shares left to buy, the price goes up. This is probably why the dollar amount of the net additions for the institutions is so high. In other words, the institutions are adding more shares then they are selling and until the new reports for this quarter come out, there is no way of knowing if these owners have added even more shares to their portfolios. This could explain why it is taking Liberty so long to buy the shares needed for total control. The weak retail shares may already be gone.
|Ownership Analysis||# of Holders||Shares|
|Total Shares Held:||451||2,000,450,223|
|Holders With Activity:||349||531,497,690|
|Sold Out Positions:||46||52,900,76|
Right now Liberty is competing on the open market with the institutions and retail investors for more shares. Once that company controls the board and the share buy back begins, Sirius will be competing for its own shares with the institutions and retail investors and all of this will be happening as the company continues to forge ahead with record breaking sub counts and revenue. The third quarter will be ending in less than two weeks. It is very possible that there will be a big news announcement about raising the guidance for the rest of 2012. Obviously anything can happen, and everyone should always do their own due diligence, however I would not dare short this stock right now. This is not the iPhone 5 where you can just make a few million more. When the Sirius XM shares are gone, there will be no back orders.
Disclosure: I am long SIRI. I may buy shares of Sirius XM within the next 72 hours.