SiriusBuzz Premium member Denco found an interesting note in the 10Q relating to an Accelerated Share Repurchase Agreement (ASR). The concept of an ASR is relatively simple. SiriusXM contracted to repurchase a large block of shares at an agreed upon price with some of the shares being delivered at a later date. In this case SiriusXM paid $600 million up front and received 112,500,000 shares as an initial delivery. The details offered are as follows:
In May 2014, we entered into an accelerated share repurchase agreement ("ASR agreement") with a third-party financial institution to repurchase up to $600,000 of our common stock. Under the ASR agreement we prepaid $600,000 to the financial institution and received an initial delivery of 112,500,000 shares of our common stock. We retired these shares and recorded a $354,375 reduction to stockholders' equity in the second quarter of 2014. The remaining $245,625 under this ASR agreement is included in Additional paid-in capital within our unaudited consolidated balance sheets as of June 30, 2014 . The ASR agreement is expected to mature no later than August 1, 2014 and will settle following maturity. The aggregate purchase price we will pay under the ASR agreement will be determined using a pre-agreed grid that references the volume-weighted average price (“VWAP”) of our common stock, and the total aggregate number of shares to be repurchased under the ASR agreement will be determined based on the VWAP of our common stock minus a discount during the term of the ASR agreement.
If SiriusXM is buying shares in an ASR, what would this have to do with the short interest? Seeking Alpha author Steven Faulkner has penned a good piece on the issue titled, Important Reason Found For Massive Short Interest. I recommend that readers check that article out, as it offers a very plausible explanation as to why things are happening the way they are.
From a retail investors standpoint this type of transaction is positive in the longer term, but does little to help the shorter term. With share repurchases, the thought is that the company is helping to support share price, or even move it up by creating additional demand on the open market. An ASR, or buying shares from Liberty does not provide this type of dynamic. Instead, the share repurchases happen in a virtual vacuum with little impact on the open market price. In the longer term, retail holders can appreciate the benefit as the share count dwindles, but some of the anticipated near term catalysts simply are not there. Thus far, the share repurchase program has been a bigger benefit to bigger players. Transactions such as these do not tend to help the technical story, and often times the technicals are the early driver of equity direction and sentiment.
When the convert debt is cleaned up, the company can focus more clearly on open market purchases, and Liberty media purchases. At this stage, Liberty Media's strategy would appear to align with the longer term SiriusXM strategy, but that may not bring about a bold move in the equity that we would all like to see. In my opinion it is critical for SiriusXM to do what it can to remain a very valuable play in the Liberty media portfolio. The last thing we would want to see is a disinterested Liberty Media. This may mean that we see a more modest open market program than we would like for the time being.
With the ASR wrapping up this week, we will see the remaining impacts in the Q3 earnings report. At that stage, we can then begin to assess the likely methodology of the balance of the share repurchase program. SiriusXM is is very sound financial health even with a few converts left to clean up. The company can grow the fundamental business and present itself in a manner that benefits all investors more quickly. Stay Tuned!