Will Liberty and SiriusXM Merge
The question of what Liberty intends to do with its stake in SiriusXM is always not far from the surface of any discussion relative to the satellite radio provider. With the recent moves and spin-off’s that Liberty Media has made, the concept becomes even more interesting. With the cable side of Liberty already spun off, the Liberty media entity that is involved with SiriusXM is “cleaner” than it ever has been. These days Liberty media is a 56% stake in SiriusXM, a 27% stake in Live Nation, the Atlanta Braves, and several small stakes in other companies. Meanwhile SiriusXM is comprised of itself and full ownership in Agero.
In many ways, a merger could make sense to many that have followed the sector for quite some time. Outside of a merger, there is always the question of whether or not Liberty simply does another buyout offer. The reality is that is is more likely a question of when a transaction happens than if it happens. The structure of such a deal is what would likely be most interesting to SiriusXM investors. Some long time investors are not a fan of Liberty taking over SiriusXM, but the reality is that this equity has a lid of sorts on it until some sort of move happens. With Liberty owning 56% of the stock, this company is essentially controlled by Liberty already.
Yes, SiriusXM is generating massive free cash flow. Yes, SiriusXM is in a great position in terms of its debt leverage. Yes, SirisusXM is buying back shares in large numbers. While this would seem to indicate that SiriusXM is deserving of being a stand-alone, we can not avoid the fact that Liberty has 56% of the stock, and that position will only grow with each share bought back. At some stage Liberty could become a 60% owner simply by sitting back and waiting.
The next move that happens, in my opinion, will be timed to deliver the biggest bang for the buck. This time I think that the board, the street, and investors will be more in tune with what happens. The “romance” of seeing SIRI as an ongoing ticker symbol and stand-alone company is now gone. Over the past year that reality has grown to be more and more accepted. Investors are releasing the romance in exchange for something that simply makes the most financial sense. It has been a long time coming, and while it will not be reality until a move is made, it has essentially become accepted.
It is no coincidence that Liberty’s CEO, Greg Maffei, has floated out and discussed such possibilities in 2014. The most recent discussion was on CNBC last week. This type of discussion has come up a few times this year. Often these things happen because the street expresses an interest in the concept, but likely, the concept is floated to test the waters. In January of 2014 Liberty put an offer on the table to buy out SiriusXM. The company ultimately withdrew the offer, but maintained that such a deal makes financial sense within a certain price range. The first pass at a possible deal was met with some cynicism on the part of SiriusXM stake-holders. Now, after a year of essentially flat equity performance despite massive share buybacks, SiriusXM stakeholders may be more willing to entertain a deal of this type. Many SiriusXM investors expressed that they did not want to be rolled into a Liberty stock that was heavily into the cable sector. Liberty removed that objection by spinning out the cable business. There are possible synergies with Live nation, so that leaves the only real objectionable component as the Atlanta Braves. Will investors balk at having a Major League Baseball team as a small component of a deal? In my opinion the merger or takeover waters are much more clear now. Stay Tuned!
I have been saying this for a while. I think they roll it all into one after the new year. The premium will be just good enough to shut everyone up and as a result of it being an all stock deal they will be effectively doing a reverse split and remove a billion or so shares and will end up getting more bang for their buck on the buyback of the Liberty shares
Spencer,
There were two major objections to liberty’s offer.
First and foremost, the ridiculous exchange price offered by liberty.
Second, as you pointed out correctly, liberty was heavily tarnished with its cable assets and there was a lot of concern that liberty might waste siri’s hordes of cash on broadband.
With the second major obstacle removed, the deal is virtually in the hands of liberty. If their new exchange offer is above $4 there is no reason to object to it. Moreover, this merger would be 100% sensible for both companies.
For reasons known only to you, you omitted the fact the deal would be beneficial not only to Sirius XM but also as much to liberty. As you can notice, liberty’s stock price is as bad as siri’s. The notion that Sirius’s share price is so low because we refused liberty’s deal is 100% flawed. As a matter of fact, liberty’s share price will suffer for as long as siri’s price is suffering. Now that they are “conjoined” twins any move that is too good for one company and too bad for another has zero chance to pass. There must be close to a perfect balance between the companies for us to see their share price where it should be today. For siri, it should be close to $5 already today.
To conclude, the merger should be undoubtedly in the cards. But the merger must be fair merger siri shareholders. Liberty’s share price will be low as long as siri’s because sirius xm is 90% liberty today. Let Malone make a fair offer and both companies will benefit tremendously. Should Malone want to play games by attempting to get siri for a song again he should be prepared to see lmca’s low price for as long as he is screwing siri.
Well said, sirifair6. This stagnant, moribund, lifeless stock CAN make a move, and rather dramatically (compared to lying in a vegetative state) if a little common sense is applied. Liberty/Malone stand to succeed very well if they take into account the welfare of the listeners and investors. That shouldn’t just be an obligation for them, but a DESIRE! Everybody is exhausted from what feels like being held in a perpetual state of hostage. I still believe in Sirius XM, and think there is a ton of untapped potential that has never been realized (Sirius XM in the home, businesses, etc.). It would also be nice if someone with the company exuded even a tiny morsel of passion about satellite radio, and deviated from the shroud of aloofness that the management asserts at all times. Why should we investors/part owners of this company be made to feel like mere afterthoughts?
Thank you.
Unfortuantely, Mr. Malone and the likes do not care about our interests. However, today’s status quo is as bad for lmca as for siri that plays into the hands of the longs. Naturally, the situation is even worse for Malone personally who owns close to 10% of liberty and a significant proportion of siri. He is not getting richer where he should be. This should be frustrating for him.
If Malone ventures for another offer, the deal will be most likely decided by siri’s institutional holders My hope is that they will not be driven by that day’s calculations but rather by a huge potential of a fair deal for both companies.
It may take a year and another $2B buyback before Malone puts another offer on the table. I do not believe that he can afford to wait much longer. He is just as human as we are and his patience has limits as well no matter how shrewd he might be.
sirifair, you say if a deal is made it will be likely decided by the institutional shareholders. I agree. They something in the high 20 percentile of the stock, individuals owning just under 15%.
I still view siri as a young tree. Every year it get’s bigger and stronger. There is still room for good subscriber growth between new and used vehicles——and at gross profit rates that are very high. Additionally, SAC rates are falling.
The connected car is in it’s infancy and holds great promise.
Regarding the share buy back programs, the compression of the number of shares has yet to explode and that was expected. Share buy backs do not have an immediate effect on pps.
If there comes another offer with a vote required for a majority of the minority shares holders approval, Liberty had best not insult my intelligence like they did with their last offer. They got control of siri for next to nothing and now they are beneficiaries of a vigorous buy back program.
I own a six figure number of shares I have purchased over 11 years.
Any offer under $5, at this point in time, would get immediate rejection from me.
James G.
It appears we are on the same page. We seem to think alike about siri’s present and future. You are right than siri is still “a young tree”. Not to offend your feelings, I will vote “for” if the exchange price is between $4 andf $5.
sirifair, thanks for your response.
Here’s a little more info. I work in the automotive field selling printed products to new car dealers.
A couple of months ago, I had a chat with a big Toyota dealer of mine. He is a very sharp guy.
To the point, what I learned is the fleet of cars on the road is still over 11 years old. For relevance, prior to the ’08 collapse, the fleet was 7.5 years old.
Furthermore, and very surprising, they are still scrapping older cars at a very high rate.
Barring another economic crisis, (which is going to come)this is very good for siri’s foreseeable future.
James G.
This is certainly good news. On top of that, the economy is and will be improving may be not as fast as we would like but quite consistently. The income issue is finally in the scope, and companies are gradually increasing pay.
All these things and others do bode well for siri for the next ten years or even much longer. And, of course, the used car market opportunity seems to be as great as OEMs were in 2004. The company has at least a decade of robust growth even without price increases (where there is plenty of room).