Liberty Media (LMCA) offered up its quarterly report today. The company beat the Street on earnings, but for many investors the two things that were more appealing were the company's comments on Charter Communications (NASDAQ:CHTR) and Sirius XM (NASDAQ:SIRI).
On January 3, 2014, Liberty Media made an offer to bring the satellite radio provider under its umbrella. The stock swap deal, if approved, will offer up 0.076 shares of a new Series C Liberty Media stock for each share of Sirius XM. Liberty already holds 53% of Sirius XM's stock, and this matter would need approval of an independent Board and a majority of the minority stakeholders in Sirius XM.
Sirius XM has hired Evercore to assess the deal and offer guidance to the independent board. Liberty Media stated today that the company has fielded questions and had exchanges with the Board at Sirius XM relative to the deal. At the time the proposed deal was announced, it valued Sirius XM shares at about $3.68. Because this is a stock swap, and a ratio deal, the focus should be on what portion of the C series shares will be held rather than on the price itself. The initial offering proposed that the minority holders of Sirius XM would make up about 39% of Liberty Media series C stock.
Some long time Sirius XM holders are not a fan of the deal, and expressed ire and frustration at the price. I spent a lot of time explaining the ins and outs of the deal and that it was the ratio we should be looking at more-so than the price. Given that the two sides seem to be in active discussion, it is pretty safe to assume that a potential deal may be within reach and that a recommendation from the independent board could arrive at any day.
Liberty's Greg Maffei stated that there may be a little room to sweeten the deal, but did express that this deal, because of its structure, has a narrow window where it works. Sirius XM investors would be wise to grasp that concept, and wise to now understand Liberty Media and its businesses better. In my opinion, we will likely hear something from Sirius XM in the next two weeks. Sirius XM stock has had a ceiling of sorts on it while the market waits on news.
Liberty has stated that putting Sirius XM under its umbrella makes more business sense, and that the capital Sirius XM has could be used to fuel growth via share buybacks and/or acquisitions.
Liberty Media also holds a substantial position in Charter Communications. Charter made a very public bid to acquire Time Warner Cable (TWC). Time Warner rebuffed the initial deal and ultimately came to agreement with Comcast. This would pair the nation's two largest cable operators. Ironically, the Comcast bid for Time Warner may be a blessing in disguise.
Time Warner and Comcast will need to win regulatory approval. Part of that approval could be the divestiture of certain markets or subscribers. Charter would be a natural candidate to pick up those markets and subscribers. In addition, Liberty has expressed that Charter is still open to a Time Warner deal if the Comcast deal falters.
What could make the Comcast and Time Warner deal falter is regulators that feel that the resulting company would be too big. If that is the issue, and Comcast steps aside, the potential value of Time Warner will suffer a bit because one suitor is now gone.
Ultimately, Liberty Media now has time on its side. The concept that Liberty needed to complete the Sirius XM deal in order to work the Time Warner deal is now a moot point. Liberty can be patient in both deals, and one is not a prerequisite for the other. Stay Tuned!
Disclosure: I am long LMCA, SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have no position in Charter, Comcast, or Time Warner