In a form 4 filing with the SEC after the close on Tuesday it was revealed the Liberty Media (LMCA) has moved substantially closer to a majority position in SiriusXM Radio (SIRI) with the addition of more shares and a new forward contract.
The company added 89,970,000 shares in open market purchases as well a new forward purchase contract of consisting of another 41,087,753 shares. The total shares in this announcement by the Liberty Media adds another 131,057,753 SIRI shares to an already substantial stake.
Prior to this move Liberty Media had carried a 46.2% position in SiriusXM. The additional shares announced in the SEC filing will bring its ownership percentage up to about 48.1%. What used to be a hop skip and jump away from a majority position in Sirius XM is now simply a hop! Essentially Liberty is only about 95 million shares shy of 50% and 155 million shares shy of a 51% position.
There are several considerations at play now:
- Liberty has an application with the FCC seeking de facto control of the Sirius XM licenses. With this latest purchase, Liberty is even closer now to actual de jure control than they were prior.
- If Liberty goes over 50% ownership it can replace the Board of Directors with one of its own choosing. This can happen without a shareholder vote on the matter if Liberty were to convert all of its preferred stake to common shares. Such a move could help streamline a negotiation process that may be muddled in negotiation at this point with the current Board.
- Liberty had indicated to the FCC that it was willing to convert half of its preferred stake. This would preserve the rights that the preferred stake offers, but would cost Liberty board seats.
- If Liberty converts half of its preferred stake it will have nearly 3 billion shares to vote with, more than enough to have determined the outcome of essentially any vote that has ever been taken by the company.
- Liberty can notify the FCC of its new purchase and forward contract. This could impact the commissions consideration process of Liberty’s quest for de facto control.
- The Liberty stake will be reported at about 48.1%, which includes the preferred stake, the new forward contract, the common shares already held, and an assumed conversion of the 7% convertible notes held by Liberty. Not considered is the possible conversion by the holders of the rest of the 7% convertible notes which could equate to over 280,000,000 shares. Conversion of the balance of these notes, which are well above the $1.87 strike price, would drop the Liberty ownership down by a couple of points. Ironically it is the shares represented by the 7% convertible notes that likely make up the vast majority of the short position in SiriusXM.
- Assuming a cushion for full conversion of the convertible notes would mean that Liberty will need to go to about 54% ownership.
- Liberty, as well as SiriusXM are likely speaking to major holders of both stock and the 7% convertible notes as they jockey for position.
Essentially we now have a clear answer as to what continued to drive the stock up over the past week despite the fact that it was severely overbought when looking at the RSI. Will the news of this allow SiriusXM to continue its climb, or will it see the upward pressure released? It will be an interesting day of trading tomorrow and for the balance of the week.