Now that Liberty Media(NASDAQ:LMCA) is getting closer and closer to de jure control of SiriusXM (NASDAQ:SIRI), there are some interesting questions about the stake they have and how many shares it actually takes to actually control the satellite radio company. Forbes contributor Joan Lappin has been following media for years and posed the concept that Liberty may actually already have over half of the outstanding shares of SiriusXM. It is an interesting thought worth exploring.
The first thing to understand is that we are dealing with various types of shares when we look at the Liberty stake:
- Preferred Shares - Liberty has 12,500,000 shares of preferred stock that convert into 2,586,976,761 common shares
- Notional Shares - Liberty has a forward purchase contract that gives it the right to gain 41,087,753 shares. They can take delivery of these on October 11.
- Shares tied To 7% Convertible Notes - Liberty Media hold $11,000,000 worth of these notes that convert to 533.33 shares per $1,000. Thus there are possibly 5,866,666 shares here.
- Common Shares - Liberty holds 497,327,872 shares of common stock
If you add all of this up you wind up with 3,131,259,052 shares. In the latest quarterly filing SiriusXM indicated that the outstanding count was 3,833,253,534. Here is where things get a bit tricky.
- In order to determine the outstanding shares after conversions we would need to add the shares tied to the preferred stake as well as the Liberty shares tied to the 7% convert notes. That would bring the outstanding share count to 6,428,096,961.
- Since the last 10Q some options have been converted and sold by SiriusXM management. These will increase the count further.
If we set aside option shares for a moment, Liberty would have 3,131,259,052 out of 6,428,096,961 or 48.7%. It takes 3,214,048,481 shares to have just over 50% with these calculations. That would imply that Liberty needs 82,789,429 more shares.
However, there is always a twist. Subsequent to the latest 10Q SiriusXM management has exercised some options shares:
- Frear - 3,379,900
- Thomas - 800,000
- Karmazin - 15,956,600
This would bring the current outstanding share count up to 3,853,390,034 and the potential count with Liberty conversions to 6,448,233,461. That would mean that the Liberty stake is actually 3,131,259,052 out of 6,448,233,461 or 48.6%. Not a huge difference, but essentially enough to move the needle slightly. In this situation Liberty would need 92,857,679 more shares. To be honest, I am not sure how Lappin arrives at the conclusion that Liberty owns more than half of the shares outstanding, but she is seasoned, so there is likely an explanation that makes some sense. I do not arrive at her same conclusion, but as she said, this issue gets complex.
The bottom line here is that Liberty Media is very close to de jure control. Liberty needs somewhere between 75 million and 95 million more shares to take it over the top. Even then, we still have the issue of the SiriusXM retirement plan, more conversion of options by management, and the shares associated with that, as well as the possible conversion of other 7% bond holders (though there is no real reason for these holders to convert now). To clear those hurdles Liberty could need to add more, but likely they can simply get control, and then keep it by adding if required.
In summary, it is clear that Liberty is there and we are now getting down to the minutia of debate. As fun as that debate may be, it does not change the dynamic that Liberty is going to gain de jure control. Hopefully this article serves to clear things up at least a little.