Question about the Liberty Deal.....

I am asking for all opinions that have a moment to answer.
Here is my question.
If change of ownership negates substantially the tax loss, how is Liberty going to avoid this upon activation of its common shares. or did the preffered share purchase already constitute a change of ownership? Or is one change of ownership considered by the IRS tax code (damaging, or a non factor, but a second one is....). I know the poision pill is set at 4.9 percent to trigger, meaning even an ownership purchase of up to 5 percent of the common would harm the tax loss status. Isnt 40 percent much worse? :D

I remember reading that the second change of ownership is the "doozy" something like liberty being the first change of ownership drops the NOL to 80% the second would drop it much lower...don't quote me, but it seems this was the case from what i read...

The liberty deal was not a change in ownership,this is why it was set up to be preffered at convert to 40% and they can only aquire 9.9% more or it triggers ownership change..the poison pill was designed to keep someone else from coming in and if they purchase 10.1% of common issued shares as it now stands,then in effect it is an ownership change..this is why it is set at 5% to trigger it.The first ownership change was the merger,which knocked it down to 80% IRS NOL take...any other ownership change in less than 3 years knocks it down to i think 23% NOL IRS deduction..JMHO

P.S.5% of stock I believe entitles them to a seat on the board and with Malone's 6 seats constitutes change of ownership in IRS eyes..Could be wrong,but know it is reason why Funds don't go over 5% in shares held,plus you have to register it with SEC..

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Originally Posted by JohnnyIrishXM

The liberty deal was not a change in ownership,this is why it was set up to be preffered at convert to 40% and they can only aquire 9.9% more or it triggers ownership change..the poison pill was designed to keep someone else from coming in and if they purchase 10.1% of common issued shares as it now stands,then in effect it is an ownership change..this is why it is set at 5% to trigger it.The first ownership change was the merger,which knocked it down to 80% IRS NOL take...any other ownership change in less than 3 years knocks it down to i think 23% NOL IRS deduction..JMHO

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So the IRS reads an ownership change as anyone buying 5 percent of the common of a company. Whether its 5 percent or 40 percent, it doesnt matter.
ok thanks. I get that now. So it went from 100 percent, they merged, it went to 80 percent, and now they must wait 3 years. So after 3 years, does it reset to 100 percent, stay at 80, or would a ownership change after 3 years drop the percentage regarless, just less if you wait 3 years. Meaning if you do it in 1 year, it drops to 23 percent. If you do it after 3 years, it was at 80 percent, but now since you waited 3 years, its only going to drop to lets say...70 percent. Is this right?

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Originally Posted by relmor2003

So the IRS reads an ownership change as anyone buying 5 percent of the common of a company. Whether its 5 percent or 40 percent, it doesnt matter.
ok thanks. I get that now. So it went from 100 percent, they merged, it went to 80 percent, and now they must wait 3 years. So after 3 years, does it reset to 100 percent, stay at 80, or would a ownership change after 3 years drop the percentage regarless, just less if you wait 3 years. Meaning if you do it in 1 year, it drops to 23 percent. If you do it after 3 years, it was at 80 percent, but now since you waited 3 years, its only going to drop to lets say...70 percent. Is this right?

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No,it's not the 5% that does it,it would be Liberty's 40% now plus 10.1% of either a person or 1 company that constitutes ownership change.The 5% is the figure of the poison pill,because it is an early warning alarm for the company because whoever is aquiring 5% has to register with SEC and the company knows about it before they get 10% aquired and it triggers poison pill..but just the fact that it is there,no one will try it with all the dilution.

Not a tax expert,but i believe after 3 years it goes back to 100% of NOL.
Saw it talked about in WSJ article in March in detail..i think homer posted it in one of the threads here.

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Originally Posted by JohnnyIrishXM

No,it's not the 5% that does it,it would be Liberty's 40% now plus 10.1% of either a person or 1 company that constitutes ownership change.The 5% is the figure of the poison pill,because it is an early warning alarm for the company because whoever is aquiring 5% has to register with SEC and the company knows about it before they get 10% aquired and it triggers poison pill..but just the fact that it is there,no one will try it with all the dilution.

Not a tax expert,but i believe after 3 years it goes back to 100% of NOL.
Saw it talked about in WSJ article in March in detail..i think homer posted it in one of the threads here.

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Ok. Let me make this simple for my stupid brain....
Before Liberty converts their shares how many shares would they have to buy, not percentage wise, but actual shares, to constitute not a 5 percent poison pill activation, and warning, but where the IRS then constitutes it an ownership change. I would also interpret this to mean then that Liberty simply is keeping anyone from acquireing 10.1 percent of the company, trigger an ownership change, take the tax loss back down to 23 percent. And then what. Does it go back to 100 percent again after 3 more years?

here is the link to WSJ article..

http://online.wsj.com/article/SB123517735084237725.html

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Originally Posted by relmor2003

Ok. Let me make this simple for my stupid brain....
Before Liberty converts their shares how many shares would they have to buy, not percentage wise, but actual shares, to constitute not a 5 percent poison pill activation, and warning, but where the IRS then constitutes it an ownership change. I would also interpret this to mean then that Liberty simply is keeping anyone from acquireing 10.1 percent of the company, trigger an ownership change, take the tax loss back down to 23 percent. And then what. Does it go back to 100 percent again after 3 more years?

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Liberty is EXCLUDED from poison pill,short answer..

No,second ownership change is permanent in 23%NOL going forward,no matter what then happens with Siriusxm..it is gone forever on second ownership in side 3 years

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Originally Posted by JohnnyIrishXM

Liberty is EXCLUDED from poison pill,short answer..

No,second ownership change is permanent in 23%NOL going forward,no matter what then happens with Siriusxm..it is gone forever on second ownership in side 3 years

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Thank you very much. You rock. :D

Noproblem, glad to help..

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Originally Posted by JohnnyIrishXM

Noproblem, glad to help..

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This is fun. lets continue.
Are you in the liberty will sell their stake to another buyer, or do you feel they will buy 50 percent themselves, or 100 percent themselves? I guess its obvious now they intend to buy more shares with how the poison pill was worded.

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Originally Posted by relmor2003

This is fun. lets continue.
Are you in the liberty will sell their stake to another buyer, or do you feel they will buy 50 percent themselves, or 100 percent themselves? I guess its obvious now they intend to buy more shares with how the poison pill was worded.

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I,m assuming Malone will follow the Direct TV model and take ownership of +50% straighten it up and prepare to sell it to highest bidder,or turn it over to Maffei and let him do what he wants with it,Malone is getting older,65yo i think..

BTW,Malone has a histroy with Tax deals,he turned Time warner into Atlanta braves as a tax free transaction and doing same with
DirectTV..

my personal opinion is he already bought his 9.9% stake with 523mil loan,which i think is what extra billion shares are for,he will take shares for some of that debt at this rediculous SP,why would he wait til it gets higher?

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Originally Posted by JohnnyIrishXM

my personal opinion is he already bought his 9.9% stake with 523mil loan,which i think is what extra billion shares are for,he will take shares for some of that debt at this rediculous SP,why would he wait til it gets higher?

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Are you saying he has arranged and discussed the purchase of more shares, or bought them on the open market? If he bought them on the open market wouldnt he have had to file? or are you saying he bought them through a third party. or many parties who have agreed to sell them to malone at a certain price, at the time of his choosing.

Look at it logically,Siri is paying off 150mil of credit facitility loans Liberty took over in deal with cash on hand this year and next.

They pay off rest of Liberty debt with shares or close to it,which frees them of hefty interest payments from bottom line,greatly improves FCF and EBITDA for next 2 years.

Now auto industry is back with a vengence and every 100k in gained subs over today adds roughly 144 mil a year in FCF.

By end of year 3 coincidentally(NOL Kicks in) they will probably be debt free..
Malone pockets tax savings of 2billion in pocket on immense profits..
Then they are knocking down the door...

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Originally Posted by relmor2003

Are you saying he has arranged and discussed the purchase of more shares, or bought them on the open market? If he bought them on the open market wouldnt he have had to file? or are you saying he bought them through a third party. or many parties who have agreed to sell them to malone at a certain price, at the time of his choosing.

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No.9.9% of 7.2 billion shares is roughly 712 million shares,so the company does a debt to share swap for 712mil with liberty at that days SP,but remember Liberty gets 40% of common when convert of preffered happens so they have to hold back 280 mil shares to cover it,see 712 + 280= 1Billion..

The math is a little off,but with 9 bil shares Liberty is owed 3.6 bill at conversion..for 40% stake.
At 49.9% it is roughly 4.4 bil or so leaving Siri with 700 mil shares for debt swap with others or emergencies..

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Originally Posted by JohnnyIrishXM

No.9.9% of 7.2 billion shares is roughly 712 million shares,so the company does a debt to share swap for 712mil with liberty at that days SP,but remember Liberty gets 40% of common when convert of preffered happens so they have to hold back 280 mil shares to cover it,see 712 + 280= 1Billion..

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Interesting. That does make a lot of sense. heres another question for you. Wouldnt it be in Liberty's best interest to buy the shares now, while its cheap. Or do you think sirius only agreed to the deal in the first place because malone agreed to take lets say $1 a share for the balance of the 10 percent stake. Gives more of a real value to what Liberty would end up actually paying for the 40 percent stake, when you factor in the substantial increase they need for the final 10 percent to get to 50 percent. 40 percent was a loan. then they use 10 percent to pay the loan back.

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Originally Posted by relmor2003

Interesting. That does make a lot of sense. heres another question for you. Wouldnt it be in Liberty's best interest to buy the shares now, while its cheap. Or do you think sirius only agreed to the deal in the first place because malone agreed to take lets say $1 a share for the balance of the 10 percent stake. Gives more of a real value to what Liberty would end up actually paying for the 40 percent stake, when you factor in the substantial increase they need for the final 10 percent to get to 50 percent. 40 percent was a loan. then they use 10 percent to pay the loan back.

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Relmor,i wouildn't think so.and it is only 400 mil now,as 130 will have been paid off,25mil to credit facility this Q and 30 mil fee already paid.plus 50 mil next q and 25 mil in dec..
So it is a race for Malone of Sp rising and May passing of Extra shares.Interesting isn't it!!!