With recent happening in Sirius XM Radio, it is no surprise that there still exists some confusion about the Liberty Deal, what the preferred shares mean, when Liberty may elect to convert those shares, and how the Liberty preferred shares impact the outstanding shares of the company.
As is often the case, people tend to try to look far deeper into situations than is actually required. In simple terms, the Liberty preferred shares are out there, and out there to stay. There is no method by which these shares would ever be returned to Sirius XM Radio unless Liberty decides to work on some sort of new deal with the company. Under the current contract, those 12.5 million shares are Liberty's to keep. Reading the SEC filing carefully is worth while, as readers will be able to clearly see the separation between the 12.5 million preferred shares, and the loan deal.
The Liberty deal had two specific phases that dealt with two very specific issues. The preferred shares were part of phase 2, and are not reversible. The loan terms are reversible, but the shares would not be a part of any such reversal. Again, the 12.5 million shares are in the control of Liberty, and will be until such time that Liberty decides to convert and sell them.
All of that being said, the likelihood of any loan reversal in the current economic environment is very slim. Another suitor would need to arise that carried an offer superior to the current deal. Over the past several months, the only other suitor was Ergen, and his deal would call for a virtual take-over of the company. The Ergen deal was rebuffed once, and will likely be rebuffed again if Ergen decides that he still has an interest. Now that Liberty is in the mix, Ergen, in my opinion, is out of it. The only way for Ergen's plans to get a second life would be if Liberty walked away. Further, Liberty has already agreed to never obtain more than a 49.9% stake in the company, thus, Liberty would not be able to wrestle control away.
Simply stated, it is once again my opinion that Liberty will not convert their shares any time soon, and that Sirius XM will not find a sweeter deal on the table. Hopefully this gives investors some clarity on the status of Liberty's 12.5 million preferred shares.
Position - Long Sirius XM