Liberty Media Discloses Number Of Liberty Sirius XM Shares To Be Issued

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Liberty files S-4/A Registration Statement and Proxy.

Discloses the number of tracking shares to Authorized and Issued.

Announces date of the vote by shareholders.

On Friday, Liberty Media (NASDAQ:LMCA) filed a Proxy and revised S-4/A Registration Statement detailing the:

Tracking Stock Proposal, the Recapitalization Proposal, the Optional Conversion Proposal and the Group Disposition Proposal (collectively, the Reclassification and Exchange Proposals).

As most Sirius XM Holdings (NASDAQ:SIRI) investors are aware, Liberty, which owns more than 60% of Sirius, trades at a discount to the

underlying assets of the company. Those investors should also be aware that Liberty had issued preliminary S-4 documents disclosing how it intended to set up three series of tracking stocks. What had not been disclosed was the timing of setting up the tracking stocks or the number of tracking shares to be issued. We now know a bit more about both.

Liberty will be holding a shareholders' meeting on April 11, 2016, to vote on the Reclassification and Exchange Proposals. It is a foregone conclusion that each of these proposals will pass. We know this because the Liberty's Chairman, John Malone, along with the Board of Directors control 49.9% of the votes. From the filing:

As of the record date for the special meeting, Liberty Media's directors and executive officers beneficially owned 49.9% of the total voting power of the outstanding shares of our common stock. As of the record date, John C. Malone, our Chairman of the Board, beneficially owned 47.3% of the total voting power of the outstanding shares of Series A, Series B and Series C common stock and 47.7% of the total voting power of the outstanding shares of Series A and Series B common stock. Liberty Media has been informed that all of its executive officers and directors intend to vote " FOR " each of the Proposals.

Once the meeting is held and the results announced, provided that the other Reclassification and Exchange Proposals conditions are met or waived, Liberty will

implement the reclassification and exchange as soon as practicable after the special meeting by filing the restated charter with the Secretary of State of the State of Delaware.

This should place the timing of the issuance and listing of the new tracking stocks in mid-April. The other major piece of new information are the numbers of new tracking shares to be issued.

There will be nine new tracking stocks listed, representing each of the three businesses being tracked for each of the three current series of Liberty stock (LMCA, LMCB and LMCK). The number of shares to be issued for each current Liberty share will be:

  • One newly issued share of Liberty SiriusXM common stock,
  • 0.1 of a newly issued share of Liberty Braves common stock,
  • and 0.25 newly issued share of Liberty Media common stock

The documents further state that a shareholder will only receive whole shares, and that if they were to be entitled to fractional shares, those fractional shares would be redeemed for cash. These documents also give additional detail on the number of Authorized Shares and the number of current Liberty shares for each series. The number of newly Authorized Shares of Common Stock will be as follows:

  • 2,000,000,000 shares of Series A Liberty SiriusXM
  • 75,000,000 shares of Series B Liberty SiriusXM
  • 2,000,000,000 shares of Series C Liberty SiriusXM
  • 200,000,000 shares of Series A Liberty Braves
  • 7,500,000 shares of Series B Liberty Braves
  • 200,000,000 of Series C Liberty Braves
  • 500,000,000 shares of Series A Liberty Media
  • 18,750,000 shares of Series B Liberty Media
  • 500,000,000 shares of Series C Liberty Media

(In addition, there will be 50 million Preferred Shares authorized, although there are no immediate plans to issue such shares.)

The rest of this article will focus almost entirely on the Liberty SiriusXM tracking stocks because:

  1. It represents the largest share of Liberty assets, and
  2. It is the cleanest and easiest to evaluate.

One of the more interesting aspects of the number of Authorized Shares is the total number of Liberty SiriusXM shares being authorized - 4.075 billion! There is a document by Baker Botts LLP included in the SEC filing that discusses the number of initial shares of Liberty SiriusXM, and shows the following:

...the issuance of up to 104,910,245 shares ...Series A Liberty SiriusXM common stock, ...up to 9,870,966 shares Series B Liberty SiriusXM common stock, ... up to 233,731,959 shares of the Company's Series C Liberty SiriusXM common stock...

That's a total of only 348,513,170 Liberty SiriusXM shares, a very small fraction of the 4.075 billion Authorized Shares. We also know that Liberty owns 3,162,173,996 shares of Sirius XM Holdings, which means that each of the 348,513,170 new Liberty SiriusXM shares would represent just over 9.07 shares of Sirius XM Holdings common stock. We also know that the Liberty SiriusXM financial asset includes a $200 million margin loan obligation, or ~$0.57 of debt per Liberty SiriusXM common share. Once the Liberty SiriusXM tracking stocks are trading, investors will be able to multiply the current share price of Sirius XM Holdings by 9 to get a fairly close indication of how much of a discount each of the three Sirius tracking stocks is trading at relative to the underlying asset. The size of the discount will give us an indication of whether or not the tracking stocks have reduced the discount as Liberty had intended.

That still leaves the question, "Why are there so many Liberty SiriusXM shares being authorized?" I didn't find anything in the documents that suggested a use for the additional unauthorized shares, although to be perfectly honest, there were almost 400 pages in the filing, and it may be in there. Regardless, one possibility is that Liberty is preparing for a potential acquisition using new shares of Liberty SiriusXM. Another might be for an eventual combination with Sirius XM Holdings. Liberty had previously proposed an exchange offer to take control of Sirius just over two years ago and may try to do so again once the tracking stock is set up.

The other assets that comprise the Liberty Media Group and the Liberty Braves Group will be far less quantifiable and investors that are interested in estimating those discounts will have a more difficult task. Liberty Media will be holding its earnings conference call later this week where investors may gain additional insights.

Disclosure: I am/we are 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 may write $4 or $4.50 covered calls against my long Sirius positions, or sell all or a portion of my Sirius holding at any time. I have no positions in any of the other companies mentioned in this article.