Sirius XM Holdings (NASDAQ:SIRI) has not conducted its share buyback in a manner similar to most other companies. It originally announced an initial $2 billion buyback on December 6, 2012, but it did not begin the purchases until after it released year-end earnings on February 5 of 2013. The reason for the delay of two months was stated on the conference call by CFO David Frear:
When we announced the program in December, we were pretty close to earnings. And so the advice we had was to stay out of the market until we had gotten kind of the material non-public information into the marketplace, which I think we effectively do with this call and getting the K filed.
The company then began making open market purchases, and through the end of the third quarter, purchased "476,545,601 shares of common stock for an aggregate purchase price of approximately $1.6 billion." That set the stage for the second unusual phase of the share buyback.
Sirius announced a second $2 billion authorization for share repurchases on October 10, 2013, and simultaneously announced an agreement with its parent company, Liberty Media (LMCA). That agreement was to purchase $500 million of the Liberty-owned Sirius stock at a price that was to be based on the average share prices during a 10-day period that began on the third day following the release of Q3 earnings. That to-be-determined price would be 98.5% of the average, subject to a minimum and a maximum. In addition, the purchase was to take place in three installments, with the first purchase amount of $130 million taking place in November of 2013, the second in January of 2014 (for $270 million) and the third on April 24, 2014 (for $100 million).
The first installment of the Liberty sale took place on November 12th and was increased to $160 million. The remaining sales were suspended when Liberty extended a merger offer based on a share exchange in early January. Then, Liberty withdrew the offer in mid-March, and announced that the remaining $340 million of the sale would be resumed. To date, no Form 4 has been filed indicating that the sale has concluded.
While this was taking place, there were no open market purchases in Q4, and a recent press release alluded that restrictive debt covenants had prevented the buybacks. Once again, Frear delivered the message in a press release about a debt upgrade on April 11th.
The upgrade of the ratings on the Notes to investment grade has the effect of eliminating many of the financial covenants contained in these Notes. Most importantly, the limitation on restricted payments contained in the indenture governing the Notes is no longer applicable and these Notes no longer constrain our share buyback activity.
With the restrictions lifted, it would appear that Sirius is ready to complete the purchase from Liberty within the next week. More importantly, it would also appear to be free to resume open market purchases.
While the company had limited amounts of cash on hand at year end ($130 million according to the 10-K), it had $0.8 billion available under its revolver. The only question for investors is whether the company has resumed open market purchases since April 11th, or whether it is waiting, as it did at the end of 2012, for quarterly earnings to be released on April 24th. April 24th... the same day that the final installment of the Liberty purchase was to take place. Whether it is anything more than a coincidence, I'll leave for others to debate.
To be clear, I'm not a big fan of buybacks. Companies often pay too much for their own shares. That is the case with Sirius, where it will have paid an average of $3.43 by the time the purchase from Liberty is completed.
But, if the company is going to go down the path of buybacks, the least it could do is borrow money to take advantage of the relatively attractive share price of less than $3.20.
Disclosure: I am long 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 actively trade SIRI. In addition to my long positions in SIRI, I have June and January 2015 $4 covered calls written against some of these positions. I may initiate new covered call positions or close out or open new positions in SIRI at any time.