Sirius XM (NASDAQ:SIRI) has been the focus of much speculation surrounding attempts by Liberty Media (LMCA) to take control of the company for the better part of the year. Liberty entered into a forward contract earlier this year for 302 million shares which it took possession of in July, and also purchased 60.35 million shares on the open market back in May.
It seems Liberty has again made open market purchases spanning August 10th, 13th and 14th, and totaling an additional 89.97 million shares of Sirius XM at price points between $2.45 and $2.52. This brings Liberty's total dangerously close to going over 50%, but it is still not enough to go to full control. Adding roughly 1.4%, this brings the Liberty total to just about 48% Sirius XM ownership through direct common share holdings including their 40% preferred stake.
There is something else important to note and which can be seen at the bottom of the filing. In addition to the nearly 90 million shares purchased in the open market, Liberty has a second forward contract for 41,087,753 shares that is exercisable on October 11, 2012. While this would not bring Liberty to over 50%, it is a secured amount that Liberty no longer has to seek in the open market.
It appears Liberty made the move a bit too late, following on the heels of a huge surge in Sirius XM's share price from $2.10 to $2.50 following its latest earnings report. Had Liberty made their purchases in July, they could have saved themselves roughly $36 million, or had they made these purchases in June, they could have saved themselves roughly $55 million based on average pricing. This appears to me to be a sudden and rather unplanned move and I am not so sure Liberty expected the share price to skyrocket so quickly following the earnings call.
Then again, there's another line of thinking. Perhaps Liberty expected the sharp move north? And perhaps Liberty preferred to spend a bit more in order to bolster the move at the $2.50 battleground level in order to ensure the share price did not retrace to some of the moving averages as it typically does? Considering Liberty already owned over 46%, spending an extra $36 million to ensure the preservation of the value of its existing stake of roughly 2.56 billion shares has had the effect of preserving on paper value of $1.024 billion based on the 40 cent difference in share price. That's significant.
Or, perhaps it was a combination of the two?
Regardless of the reasons behind when the purchases were made, the fact rests that Liberty Media is now less than 2% shy of control of Sirius XM. FCC approval for license transfers? I think that is in the bag, and may include conditions that Liberty go above 50%, which should not be much of an issue as Liberty should be able to purchase these on the open market going forward.
So it appears that the idea of a price "cap" of $2.15 for Sirius XM suggested by the bears, and additionally the supposed "fact" that Liberty will not pay a penny more than $2.15 per share has been squashed for good. Liberty has now paid up to $2.52 per share and, in my opinion, will possibly pay even more for the rest. Additional purchases could very well bring the share price right up to my $2.75 target for the year, or quite possibly even $3 on the high end.
Investors who have held in there and filtered out all the nonsense, have so far been rewarded. In my opinion, the upward moves are still not over. Not only is the battle for control now bolstering the share price, but what comes after the battle for control should boost it even further. As a Sirius XM investor, I look forward to it.
Disclosure: I am long SIRI, LMCA.