SiriusXM – Oh The Irony
As SiriusXM tumbles down, there are many investors that are frustrated. Not a day goes by that I do not receive communications from investors regarding the company and the proposed transaction with Liberty Media. To my surprise, most of those that contact me really do not understand this deal. These investors are hung up on stock price when what they should be focused on is the ratio. Even some class action law firms do not seem to understand the deal, or worse, understand the deal, but use the investor confusion to “rile up the troops” in hopes of finding the best lead plaintiff possible. It is actually quite sad…And ironic.
Think about this. The very board of directors that SiriusXM investors have said was doing the right things for the business are now being accused of breaching their fiduciary duties before they even get a chance to do them. Taking it a step further, the very same board of directors that would be running the company very well as a stand alone in the years ahead (according to some investors) is suddenly not doing the right thing with regard to the Liberty Media transaction. Does that make any sense at all? On one hand you trust these guys well enough to get the stock to $4.50 a year from now, while on the other you are saying that they are not capable of their job with respect to this deal. I will say it. These investors are not making sense, and are reacting on emotion rather than common sense.
How many law firms have lined up to “investigate” this action. One firm in Boston, Block and Leviton, has even gone so far as to publish this:
“Block & Leviton LLP, a Boston-based law firm representing investors nationwide, has commenced an investigation into possible breaches of fiduciary duty by the Board of Directors of Sirius XM Holdings Inc. (“SiriusXM” or the “Company”) (NASDAQ: SIRI) concerning the proposed acquisition of the Company by Liberty Media Corporation (“Liberty”) (NASDAQ: LMCA), in a transaction valued at approximately $10.6 billion. The investigation is also seeking to determine whether Liberty aided and abetted the Company’s breach of fiduciary duties. Under the terms of the proposal, Liberty would acquire each Sirius XM share for 0.0760 of a new share of Liberty Media Series C common stock, valued at approximately $3.68, a paltry premium of less than three percent wrought through Liberty’s domination of SiriusXM as the Company’s majority stockholder. Liberty’s CEO Greg Maffei bluntly stated “This is not a change of control: We already control Sirius XM.” Liberty, by virtue of this controlling stake in SiriusXM, has shown no interest in paying an appropriate premium to minority shareholders in the Company.”
1. The firm is launching an investigation about a breach of duties on the very day that the proposed deal was announced. Interesting. Common sense would dictate that the board had not yet even had a chance to even begin their duties.
2. The firm is investigating whether Liberty Media aided and abetted the supposed breach of duties that the company had not even yet had a chance to begin? HMMMMM.
3. The firm states that Liberty would acquire each SiriusXM share for 0.076 shares of a new series of Liberty Media C series share. This is really not an accurate way to portray the deal. The SIRI shares will no longer exist, and the SIRI shareholder will still hold stock. SiriusXM investors would now be invested in Liberty, of which SiriusXM will be a part.
4. The law firm goes on to bring the $3.68 figure, that was really only appropriate on the day the announcement was made and based on the closing price of Liberty and the closing price of SiriusXM. This is a ratio deal. This is a stock swap deal. It is not a deal that would pay on future value.
I could go on and on. What I see here are law firms throwing darts in hopes of getting status with this case. In my opinion these firms are being opportunists and in many cases confusing shareholders more-so than guiding them appropriately and helping them understand. After all, guiding shareholders is not a profitable business. Getting a settlement is where the money is. Throw an investigation up for any and every deal in America and hope that you score on a few. It would appear that it does not matter if the investigation has no merit. Many of these firms simply cast a wide net and hope. Often that hope is in finding a great lead plaintiff with standing. They do not wait for a company response, the opinion of analysts, or the opinion of experts. They throw their net out there and hope that someone messes up.
Think about this. Isn’t it telling that the major institutional owners of SiriusXM have not been jumping up and down in droves? Isn’t it interesting that subsequent to his knee-jerk reaction to the news that Ralph Nader has gone silent? Perhaps…just perhaps…with a little bit of time to digest the news, more and more people realize that this is not a buyout, but rather a swap. This is trading a BMW for a Mercedes, or visa-versa.
Before jumping up and down, ranting, raving, and running off to join the latest class action firm to hand you a lollipop, get the information in hand, and consider the irony that the same independent board members you had all of that faith in is the same independent board members that are hiring the consultants and attorneys to assess this offer. Sue them before they even start the process? Very telling. Very telling indeed.
I have stock in both companies. I do not endorse the deal yet, but realized years ago that this day would come at some point. What I endorse is understanding the deal and the dynamics before I cast my vote. We simply do not have that information yet.
You make sense Spencer. I admit, I got swept up in the emotion. Caught off guard by the Liberty announcement on January 3rd. I was angry for the timing, as I had a very tight window to cash out my long shares that I’ve been holding since 2010. I guess I was kickin myself for not cashing out at $4 in October. But I really thought SIRI could hit $4.50 by the summer. Or at least hold $4.
I’ ended up panic selling at $3.41 during the market correction and after the wunderlich downgraded double whammy.
Can’t complain. I more than tripled my money. Didn’t have the stomach or patience to wait out a deal. Feeling alittle regret about that. But I’m out now. So it’s done. 🙂
Don’t believe anyone is confused that this is a stock swap with no voting rights don’t forget
Joe….
I have a ton of communications from people that are very confused. They are looking at a stock price rather than looking at the percentage of ownership in Liberty.
Voting rights….
Right now you have voting rights that are meaningless (except for this one issue). You can vote all day long, but the company matter will be decided by what Liberty wants.
So, your voting situation will not really change
Hey Spence. Do you think SIRI is oversold here? Or do you think its fairly valued? Or is it just tied to LMCA right now, so that if LMCA stays low, then so will SIRI?
It is a bit oversold and at the lower end of valuation. That being said, there is a bit of a ceiling because of uncertainty
yes, you are trying to make people stay balanced on what is happening, however, I still don’t get why you are not more aggressively against the offer.
why would someone think this liberty offer is beneficial to shareholders? yes, I understand they currently they are in control and so we have little say as it is, but seems like we should be letting people know why they should vote NO for this offer.
Your articles make me think you are ok with it. Yet no one has offered any evidences/suggestions as to why this offer is good for current shareholders.
Cliff…..
In my opinion if a deal is not struck it will simply delay the ability of the company to increase in value. Further, I think that liberty does a fine job at creating value..
Evidence to why this is good.
Liberty outperforms Sirius XM in creating mid and longer term value.
Thus will consolidate shares under one roof. Right now you can invest in Sirius XM at a discount by buying liberty shares. Why buy SIRI at full price when you can buy LMCA and get invested into SIRI at a discount. Savvy players have been doing just that for 2 years now. If liberty ownership increases, the street will begin to play that angle more and more.
Spencer, thanks for the response.
My concern is that how can it be a good thing when another company wants to take the almost $3.5 billion available (if ratio is 4.0 as stated in the CC) and NOT use it for buy backs, capital return or dividends for current share holders? It has been stated pretty plainly that Liberty’s intent is to use the cash/borrowing power for other acquisitions, such as TW, and not use it to enhance current shareholder value.
If I have a million dollars I can borrow from a bank, I’ll use it to enhance my own efforts and not car a bit how me borrowing the money negatively or positively affects the bank even as that bank keeps handing me more and more money…Sirius XM is/will be Liberty’s bank.
I guess overall I’m a bit surprised you like the offer. You state Liberty does a fine job of enhancing value, yet they could do that right now w/ SXM by helping form partnerships w/ Live Nation, B&N, and Direct TV, but they don’t.
Would you mind writing an article going into detail why this is NOT a good for Sirius investors?
Or, maybe write a detailed article why this is good for current shareholders?
your article’s intent was clear, but it does not address why Liberty’s offer is good or not good for investors.
Liberty being good at creating value does not, at least for me, make a case for minority shareholders to vote yes on this offer.
I see more value in Sirius buying back up to $3.5billion in stock, having $1 Billion in FCF, and the potential of the connected car being the best value for minority holders.
I just can’t wrap my brain around spending that same money and FCF on Time Warner or any other ‘value’ additions Liberty may think they offer.
Maffei said, it will offer ‘more liquidity’..really? That’s a reason to hand over $3.5 Billion ??
sorry spencer, it all just sounds too weak to me. And I mean this w/ no disrespect, but even you have not presented a case to vote yes. My sense when I read your articles is that you want it to happen. Be it based on your own conscience or prodding from someone/something else.
thanks for listening.
I respect your writings & opinions and hope to hear a good case presented for Yea or Nay voting on this offer.
Looking forward to some more helpful insight from you
[and, yes, I know we are in the minority to Liberty and voting power may or may be relevant…but that is not a reason to go ahead and vote yes.]
🙂
Spencer writes quite a few premium articles per week that only our members can see… just saying 😉
Cliff…
The money is not being taken. It would be used in the best efforts of the company to create value. Liberty buys back a ton of shares, but they also create shareholder value through acquisitions. Why is it that you think acquisitions do not increase shareholder value? They often do, and often increase it at a better rate than share buybacks.
SiriusXM is Liberty’s bank already. If a dividend is paid, who do you think gets over half of it? The current structure is not as efficient for Liberty or shareholders.
It is not about liking or disliking the offer. This is about seeing the bigger opportunity. The bigger opportunity is now on the table. We are not being bought out….we are being asked to be a part of something even bigger.
Liberty does do a great job enhancing value. Liberty does not control Live Nation. Liberty has nothing to do with Direct TV.
In my opinion not getting a deal done is not really an option. This day was bound to come at some point, and now it is here. Analysts are already saying that the company is worth more in a deal than without a deal. If investors did not see an eventual deal coming they should have not been in the equity.
The reason it is good is simple. Efficiency, taxes, and more impressive shareholder value. These are concepts that I bring to the table for my premium readers.
Again….there is no handing over of $3.5 billion.
Spence this is not a good deal for sirius shareholders the ratio stinks and why does liberty holders get the dividend Sirius is the meat and potatoes of the deal they have all the free cash and revenue
Fraz….
Liberty shareholders do not get a dividend in the classic sense of the word. They get 2 shares of c for every a share. meanwhile the price of A will be cut by 2/3. It is essentially a wash for Liberty Hoders in that sense. Liberty is a cash making machine. They will continue to be. They can be a better cash making machine with an efficient SIRI.
Liberty’s stock price has now made siri the more attractive purchase. Prior to the offer, siri, percentage wise, was expected to do better than Liberty.
Lately siri share price is less reflected by Liberty’s share price. Before the offer liberty shareholders buying siri were growing in quantity. Siri only missed last quarter because siri paid a debt which was not necessarily due.
This deal allows Liberty to hold on to the majority shares which avoids jeopardizing Liberty’s sought after merger. That makes the minority shareholders interest worth their weight in gold.
A respectable premium is anticipated. With Liberty’s record of dealings with siri, the minority shareholder’s will have a struggle and to struggle with liberty without representation is ludicrous.
Spencer,
I agree with very well put comments by cliff and other readers.
Your statements in favor of siri’s pluses under liberty are not based on any hard facts. Sirius xm is a cash machine that Malone is anxious to use for years for his own grandiose plans that he thinks will put him on the same level with Warren Buffett of Bill Gates whereas he is not either of them. I am not convinced that Malone’s plans are necessarily good for siri’s plans.
Currently liberty/Malone made it obvious that they need siri for its cash. Today, Malone needs cash to buy more of Charter so that Charter could use this cash for the Time Warner acquisition. Even if this acquisition works out, and liberty gets in the meantime to 40% of Charter, I do not see the benefit for me.
What I do see is that Malone may start using siri’s fast growing cash and its cash potential both to spend on his so called deals and as collateral against borrowing. I am not convinced that livery’s deals may benefit me. One of such deals – Barnes and Noble – for example is a disastrous waste of money. Atlanta Braves may be an asset but not a cash producer. Incidentally, why wouldn’t Malone use this team as collateral instead of siri?
In contrast, and I disagree here with you 100%, siri’s value will be growing very fast if the company were left alone. Even if Malone pays himself a dividend, the minority will get the same dividend while being one company with the same stock and a very clear objective.
To conclude, the results of the last Q and 2013 overall made it very clear that the company is not only on the right path but also has a tremendous future both in terms of its radio service and telematics/security services. The value of the company will be growing much faster than you think. This year alone, per Frear, they could get access to $3.5B ($1.1B fcf + $2.4B borrowed) that they can spend on very effective things like buybacks or may be even dividends. In five years the revenue may double due to natural growth and the Agero effect and the fcf may grow even faster. Of course, I do not have a crystal ball. But what I do have is my experience with the company that made me fantastic returns in the past and very much likely in the future.
And any siri holder saying to vote no because of their imagined growth trajectory of the future is not based on facts.
The fact is that Liberty and Liberty shareholders have grown MORE than SiriusXM over the past year. That fact is that this dynamic is more likely to continue than not. The fact is that Liberty has 53% of SIRI and this ownership may increase. The fact is that smart money moved into liberty instead of siri when given a choice. These are facts
I for one would appreciate insulation from the “dashboard war” and I am very interested in my investment participating in cable consolidation.
Since this is a swap, the lower the LMCA stock price the better for Sirius XM holders. Correct?
Looks like malones low balling ways gets exposed, he offers twc 132/share comcast offers 158/share friendly share swap. Malones is trying to lowball siriusxm retail investors as well.
Exactly right. Malone low balled 50% of a Belgium cable company and got bubkis. Now, he low balled tWC via cHarter… and got bubkis. He low balled siri, and will get bubkis.
All these tall stories that if the transaction falls through, Malone will get siri anyway via buybacks is a bunch of bull. What Malone will get if he continues his predatory actions making siri buy back unilaterally to increase his stake inrodinately is a ton of lawsuits and court orders to sell off his shares at par of the bought back float. If he decides to pay himself dividends I do not mind since I will get them as well.
As to liberty’s stock growth being faster than siri’s in 2013 this is not meaningful for a hundered of reasons from siri’s stock manipulation to 2013 being a tough years for siri with its refinancing, acquisition on top of uncertainties created by same Malone.
Time Warner Cable debacle of Malone’s is a great message to siri shareholders to roll up their sleeves and fight back in the face of all these doom and gloom augurs. Sirius XM is ten times better qualtiy company than liberty and should do what is best for it, that is continue on its path to prosperity on its own!!!
Malone’s offer is insulting and I will vote NOOOOOOOOOOOOOOOOO!!!
The irony is that XM was a better radio station than Sirius and it’s stock showed that for several years. When I bought my XM stock I had been watching it climb the chart for several years. I wanted to make sure I wasn’t investing my hard earned money on something that would tank right after I bought it. I paid $35 a share for XM, Sirius stock was around $2 a share I think at the time. The day after I bought my stock Delphi which made the XM radio receivers filed bankruptcy, noting the crisis with the automakers was the reason. I was stunned to say the least. Stunned might seem mild, more shell shocked I think. When it was all said and done XM stock was down to $15 a share. If the programming had stayed the same I think XM might have pulled itself together and garnered more listeners. Unfortunately every time the music industry felt like they were being cheated out of money they would raise a stink and XM would raise their rates while their programming took a huge hit. Granted it was the same old R&B, or Soul singers I had been listening to but it was hits that no one had ever heard of. Most likely the B side of a 45 single that never went anywhere. It continued on this way for sometime. Then the stock went to like $8, I bit my tongue every time I looked at the stock market. I had over $900 invested in this stock. Out of the blue Sirius says it is buying XM radio, duh how can that be when their ratings and stock price have barely climbed out of the basement? Then came the 10-1 reverse stock split, who was the moron who thought up this concept? I held on to the stock for as long as I could and then I finally gave up on it ever doing anything better than it was. Then they raised their rates again to over $22. When I started my subscription it was like $12. Sad day.