Listen, my children, and you shall hear Of the midnight ride of Paul Revere, On the eighteenth of April, in Seventy-Five: Hardly a man is now alive Who remembers that famous day and year.
- From The Midnight Ride Of Paul Revere by Henry Wadsworth Longfellow
Aside from this being the start of one of my favorite poems, and one of the more memorable ones that many from my generation read in English class, there were a couple of interesting tie-ins this past week to Sirius XM Holdings (NASDAQ:SIRI). From a historical perspective, the warning spread by Paul Revere, William Dawes and Samuel Prescott brought the Minutemen together and preceded the battle of Lexington and Concord. That battle was not only "the shot heard 'round the world," but it was also the start of the American Revolution, or the War for Independence.
Many Sirius investors consider the company to be battling Liberty Media, along with John Malone, chairman of Liberty Media (NASDAQ:LMCA) and Greg Maffei, Liberty CEO and Sirius XM chairman. These investors want the company to fight for its independence rather than be acquired by Liberty for a small premium. That "battle" began more than seven years ago, when Sirius was about to default on a loan and Liberty loaned Sirius half a billion dollars in exchange for the right to buy 40% of the company for $12,500. Over the years, a number of "hostile" events occurred:
- Liberty began buying additional shares in the open market and through forward purchase contracts.
- The company sought de facto control of the Sirius FCC licenses in 2012.
- Liberty went to majority control in early 2013.
- It made a takeover offer in early 2014.
On Friday, Liberty issued a press release, stating the company:
completed a previously announced transaction whereby it recapitalized its existing common stock into three new tracking stocks: the Liberty Braves common Stock, the Liberty Media common Stock and the Liberty SiriusXM common Stock (the "recapitalization").
I covered the planned recapitalization in several previous articles, including one late last year when we first saw the red herring, and a follow-up article when we found out the number of tracking stock shares that would be issued. Now, we find that Liberty "... anticipates that the newly issued shares will commence trading or quotation in the regular way on the Nasdaq Global Select Market or the OTC Markets, as applicable, on Monday, April 18, 2016" under the following symbols:
Nasdaq Global Select Market
Series A Liberty SiriusXM common stock
Series B Liberty SiriusXM common stock
Series C Liberty SiriusXM common stock
Series A Liberty Media common stock
Series C Liberty Media common stock
Series A Liberty Braves common stock
Series C Liberty Braves common stock
Series B Liberty Media common stock
Series B Liberty Braves common stock
The establishment of these tracking stocks was to unlock the "hidden value" in Liberty shares. The shares were believed to be trading at a discount to the assets held by Liberty. The largest of these assets are its positions in Sirius, Live Nation (NYSE:LYV) and the Atlanta Braves. That percentage discount has been estimated at various times to range from the low to upper-middle teens.
However, for some Sirius investors, this is probably viewed as just one more hostile action. The creation of Sirius tracking stock(s) could be the first step by Liberty prior to making another exchange offer. This time, in certain respects, the exchange would allow current Sirius investors to more directly continue participating in the potential future appreciation of Sirius. Meanwhile, investors in both Liberty and Sirius would be wise to monitor the prices of the tracking stocks to see if the discount is, in fact, reduced.
The 18th of April in 2016 marks another event. It is the celebration of Patriots' Day and the annual running of the 120th Boston Marathon. Sirius CEO Jim Meyer often describes the company's entry into the Connected Vehicle Services business, an entry that began with the company's acquisition of a business unit from Agero, in this manner, "The race we are running is a marathon, not a sprint."
A marathon is an incredibly difficult race to win. This year, 30,000 entrants were accepted. Many are just hoping to finish the 26 miles and 385 yards. Others will be trying for a personal best. But more importantly, a marathon has never been the type of description I want to hear the CEO use to describe one of my investments.
The Marathon itself takes its name from another battle - this one in ancient Greece against the Persians. Legend has it that the Greek - Pheidippides - who ran the 26 miles from Marathon to Athens died as he finished delivering his all-important message. Again, not the ideal model for a successful business.
Regardless, the use of the term marathon has also come to mean:
something (such as an event or activity) that lasts an extremely long time or that requires great effort
In that sense, the Sirius announcement last week that it passed 30 million subscribers might be aptly described as the result of a Marathon effort. The milestone was reached by the company having its best first quarter for total net additions (465,000) since 2008 while self-pay net additions (348,000) had their second best quarter since 2008. These results will likely cause Sirius to increase its subscriber guidance when it releases first-quarter earnings later this month.
While I don't expect "the 18th of April in '16" to be part of a well-known poem, it could mark the start of a week with some interesting pricing actions for Sirius and the Liberty tracking stocks. First, Liberty investors may need to decide whether they want to stand pat or hold more or less of one of the Liberty trackers. And, even though it is Liberty Media that is issuing the new tracking stocks, it is possible that certain investors will be re-arranging their investments if they perceive that a Liberty Sirius tracking stock is mispriced relative to direct ownership of Sirius XM.
Disclosure: I am/we are long SIRI, LYV.
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: In addition to my long position, I have $4 covered calls written against a portion of my position and I regularly trade blocks of Sirius. I also may sell $4.50 covered calls against my uncovered position at any time. I may also decide to sell Sirius shares and but the one or more of the new tracking stocks at any time.