Liberty Preferred Shares Clarified
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
Tyler — in my double-checking of my research on this mess created earlier today by another poster, I found a tidbit in the Certificate of Designation for the preferred shares that states that the preferred shares actually have an expiration date on them… 10 years, believe it or not. Liberty has to convert them by March 6, 2019 – or they will expire worthless. So that at least paints a timeline picture on these preferred shares.
I also stumbled across a covenant in the Investment Agreement that prevents Liberty from hedging against their investment through any kind of hedging transaction until after 12/31/2009. I stated in some posts that Liberty may be hedging against some of their position to lock in some stock gains — however, I see now that they cannot do this until the end of the year.
PS – The agreement to not purchase more than 49.9% of the beneficial shares, is only a 3 year agreement. It expires on March 6, 2012.
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However . . . Liberty Radio, LLC is permitted to make a cash tender offer for all outstanding shares after only 2 years.
Quoting . . .
“The preferred stock is convertible into 40% of our outstanding shares of common stock (after giving effect to such conversion). Liberty Radio, LLC has agreed not to acquire more than 49.9% of our outstanding common stock for three years from the date the preferred stock was issued, except that Liberty Radio, LLC may acquire more than 49.9% of our outstanding common stock at any time after the second anniversary of such date pursuant to any cash tender offer for all of the outstanding shares of our common stock that are not beneficially owned by Liberty Radio, LLC or its affiliates at a price per share greater than the closing price of the common stock on the trading day preceding the earlier of the public announcement or commencement of such tender offer. The Investment Agreement also provides for certain other standstill provisions during such three year period.”
Interesting about the March 6, 2019 but, I would think, and it is hard to think that far into the future, that this kind of termination date is fairly benign. The configuration of the current company will probably not out live these shares. In the event that they do a simple re-issuance of preferred shares vs allowing the conversion to common, with a new termination date would be all the housekeeping required.
My real question in light of the Preliminary Proxy statement is that I and other investors, were lead to believe that the Liberty Preferred Shares were not voting shares until they were converted to common. If I read the PP statement correctly it appears that they are able to vote on these Shareholder issues…. A little clarity here Homer on this issue would relieve some anxiety ….. thanks in advance.
Two-part answer:
PART 1:
“Issuance of the Preferred Stock
On March 6, 2009, we issued 1,000,000 shares of our Series B-1 Preferred Stock in consideration for the investments described herein and 11,500,000 nonvoting shares of Convertible Perpetual Preferred Stock, Series B-2 (the “Series B-2 Preferred Stock”). All of the shares of our Series B-2 Preferred Stock were converted into 11,500,000 shares of Series B-1 Preferred Stock on April , 2009. The rights, preferences and privileges of the preferred stock are described in the Certificate of Designations. A summary of the terms of the Certificate of Designations is described above. The foregoing description of the Certificate of Designations does not purport to be a complete description of all of the terms of such Certificate of Designations and is qualified in its entirety by reference to the Certificate of Designations, a copy of which are filed as Exhibit 3.1 to the Current Report on Form 8-K dated March 6, 2009 filed with the Securities and Exchange Commission.”
THUS KNOWING THAT ALL WERE CONVERTED TO B-1 . . .
PART 2:
“What are the voting rights of the holders of our common stock and our preferred stock?
Each holder of our common stock is entitled to one vote per common share on all matters to be acted upon at the annual meeting and the holder of our Series A Convertible Preferred Stock is entitled to 1/5 of a vote per share of our Series A Convertible Preferred Stock on all matters to be acted upon at the annual meeting. Holders of our common stock shall also vote separately as a class to approve each amendment to our certificate of incorporation.
The holder of our Series B-1 Preferred Stock does not have the right to vote with the holders of our common stock and our Series A Convertible Preferred Stock to elect the Common Stock Directors at the annual meeting. On all other matters submitted to a vote of the holders of our common stock, the holder of our Series B-1 Preferred Stock is entitled to slightly less than 207 votes per share of Series B-1 Preferred Stock, voting together with the holders of our common stock and Series A Convertible Preferred Stock as a single class. On the record date, shares of our common stock were outstanding. In addition, 24,808,959 shares of our Series A Convertible Preferred Stock, representing aggregate voting power of 4,961,792 shares of common stock, and 12,500,000 shares of our Series B-1 Preferred Stock, representing aggregate voting power of 2,586,976,762 shares of common stock, are outstanding.”
so, yes, they do vote except on the appointment of directors . . . just for fun . . . multiply 207 times 12,500,000 and tell me what you get. nice huh?
sorry, just noticed they already did the math (where are the edit buttons)
One correction – it is the registration rights that will expire in ten years, not the shares themselves. Not quite the same thing, but it does complicate matters for Liberty — I believe that they would likely convert before such a date.
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There is a track record with Liberty and Malone.
With the company OpenTV, Liberty sold the controlling class shares to another company, Swiss based Kudelski. After about another year Kudelski is now offering to buy the common it doesn’t have. With Time Warner he traded his common for the baseball team and some other operations in a tax free deal.
I don’t believe there is an example where he converted preferred to common.
Malone is all about tax advantaged trades. I still think some move with AT&T to include Directv and Sirius will happen sometime in the future. The disribution possibilities with AT&T and Directv are obvious as they want to compete with cable but imagine the ability to package Sirius with the cell phone. It offers a huge new ditribution platform similar to auto’s…consider the free 6 months and a 50% buy rate. AT&T has 40 million customers. Look at the last time Malone sold out to AT&T.
Tyler –
I like this new competition between you and Brandon.
“As is often the case, people (did you mean Brandon) tend to try to look far deeper into situations than is actually required.”
Your article/response came out not too long after Brandon posted his view on the Preferred.
Coincidence, I don’t think so.
sxminvest…..
I was travelling and when landed had several emails on the subject. It seemed that several people were looking to deep into the language. The answer is plain and simple. The shares a Liberty’s to keep no matter what.
I confirmed this with two sources prior to publishing my article.
Rest assured, the shares are Liberty’s to keep.
For All……
A simple phone call to Sirius XM’s investor relation will tell you all what you want to know. The company is busy, so be respectful when you call and keep your questions simple and to the point.
Imagine that?
FWIW, as you know, I only looked deeper into it because its the only way that Brandon would be able to be set straight — but apparently, that isn’t even good enough for him. He’s still challenging it…
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