Liberty Media Adds to Stake
There are a few clouds surrounding SiriusXM right now. When will the FCC rule that Liberty can indeed have de jure control? Will Mel Karmazin stay or go? Will Q3 be good? What is the guidance for next year? All of these very valid questions need to be answered at some point, but until they are, the cloud remains. The big question is what will happen after Liberty stops buying. At 49.9% the company must pause and await the FCC decision on de jure control.
Karmazin speaks next week, and while he may not say much regarding Liberty Media. The market will be yearning for something. I still think raising subscriber guidance in the days surrounding that event is in the cards. August auto sales were quite good, and it is apparent that the company will be darn close to the 1.6 million guidance by the end of this quarter. With Liberty being as close as they are, and with Karmazin speaking next week, it is more important than ever to keep your eye on SiriusXM.
The technicals on SiriusXM are a bit precarious right now, and it is getting to the point that something has to give. There is support at $2.50, resistance at $2.56, and a very tight trading range that has kept new money from entering the equity and the shorts at bay. A move should happen soon, and it is simply a question of which way it will go. Volume, Support and Resistance Levels, and Exponential Moving Averages can be helpful in making that determination, but the real cause of movement will happen on news, and essentially there should not be any negative headlines in the near future. This leaves an overall bullishness in tact even from a technical standpoint and even if a small retracement occurs.
Spencer, I’ve been considering a play similar to yours, wherein I sell half of my SIRI shares and buy LMCA. Now that I have double my stake after holding and averaging down for 6 1/2 years, I have a sense that a take-over from Liberty can only prolong the wait for any great appreciation in SIRI shares.
Let’s face it, this has been a good run up the past couple months,but the signs are everywhere that Liberty wants a premium for themselves before Sirius goes further, and Malone stated as such.
Of course Karmazin wants the same for Sirius, but realistically, who holds the advantage here? It appears that they want to reduce the float by adding on more debt, and somehow this will magically equate to “everybody wins”.
I don’t see an RMT being comparable to the RMT they did with DirectTV because of the size of outstanding shares. Somehow they need to reduce the amount of shares that the new company post-RMT will have.
Unfortunately I think that the Sirius shareholders will feel it more during this transition than the LMCA shareholders will. And that is why I think it is a very prudent move to sell Sirius and by into Liberty before everything is settled. I might make out holding SIRI shares in the long run, but as seen before with this stock, that “long run” somehow always gets stretched longer.
Also, I don’t buy the argument that what is bad for Sirius is bad for Liberty because somewhere during this process some component of stock valuation will have to take a hit(i.e. some investors) in the short/long term in order to restructure the share-count.
If you think my reasoning(speculation)is flawed, please critique it. But I like your idea of hedging your bets, because time is running out before the takeover(control) by Liberty is a done deal.
Thx for your time and GLTA!(I hold 28,0000 shares of SIRI @1.21)
Thank you for the comment.the way I see it Liberty Media is in control of the game and as such can exert a lot of pressures. They can not go too far with their control, but they can get and maintain the advantage. Liberty is in the process of spinning out Starz now. That means I will also have a new stock. I do not see that as bad.
If Siri takes on debt to buy back shares, an ev to ebitda multiple of 20 ( at the high end of the scale) happens at just $3.40 per share, not much higher than current 1 year price targets.
Meanwhile liberty could be at a discount right now relative to trying to invest into Siri. This means that buying liberty gives you theoretical access to Siri shares at a cost that is less than buying Siri on the market.
Some still seem to want to fight liberty, but in the end they are biting off their noses to spite their faces. Liberty has expressed a desire to get the cash back that they had to invest int common shares. That means the more liberty pays now, the more liberty will get in the merger.
More investors need to be thinking strategically about how to play this instead of playing hard defense. The outcome is written on the wall.
In the end I could wind up with the same number of Siri shares I had, while having gotten some of them at a discount.
Thx Spencer for the clear-headed thinking. I am definitely trying to think strategically. If I put my original investment( i.e. half my SIRI shares now) into Liberty, I really don’t think I will lose and it seems like a sound hedge. On the other hand, it has been so nice seeing my Sirius investment double after the extreme roller-coaster we have gone through the last 6 1/2 years!
You hold 28,000 or 280,000 Siri shares? SIRI shares were in $1.80’s when Spencer gave the idea to hedge. He sold half SIRI to buy LMCA. Look where SIRI is now and look where LMCA is. Who had the most gain? SIRI has much more room to run
Fuzzy…..
A couple of things:
1. I sold SIRI at $1.87 and I bought Liberty at $83.47. That means SIRI is up about 33% and Liberty is up about 26%.
2. With SIRI I simply have my shares, whereas with Liberty, my number of SIRI shares has increased by 18% because Liberty has been buying shares of Sirius XM and gone from a 42% stake when I made my transaction to a 49% stake today. In effect, Liberty has been buying Sirius XM shares for me while liberty stock has also appreciated.
3. Sirius XM is trading at the top end of the EV/EBITDA multiple scale now. A realistic price 12 months out is $3.25 to $3.50.
4. Liberty will own over half of Sirius XM, as well as other profitable interests. Which will be a better play
Thanks! I hold around 110,000 SIRI shares @ .70 cents. I bought all the way up to $9 in 2004 and then on the way back down to .05 cents. How many SIRI shares do you hold Spencer? I have read somehere that you hold almost half a million shares. Is it true?
fuzzy….
Not sure where you heard that, but then again there are many things said about me on the net that are not true….LOL
I do not disclose my position other than to say that I have a number of shares greater than 4 figures and less than 6 figures.
I bought SIRI at between $0.38 and $0.43 cents and XM at a couple of bucks. I sold out of most of my SIRI in the $7’s and most of my XM in the $30’s.
I have maintained a position ever since but do not trade it often. I conducted a trade at the time of the merger, selling all of my SIRI and buying XM in order to get the benefit of the arbitrage. I sold half of my SIRI a few months ago and bought Liberty in anticipation of an RMT and the fact that I feel that Liberty is more likely to get a premium in the deal
If he had half a million shares, he certainly wouldn’t put up with me.
Yea sorry for the typo. I have “28,000” shares at 1.21.
Thx for the feedback, I’m going to wait till after Mel speaks next week….maybe…?
Spencer,
After taking control of SIRI, do think Malone will leave SIRI alone after looking at profits and make the share price grow organically after share buybacks? As the SIRI shares grow, LMCA shares will also go up in value, right? What are that chances of this happening instead of RMT? It’s a win-win for both company shareholders and Malone.
That does not have the same tax benefit for liberty and it’s shareholders. The tax benefit is substantial.
All I want to know if if Siri is going to be at least 2.75 by months end. This very narrow sideways channel for the last several weeks has got to end next week to the positive cause a lot of folks are getting real impatient not making money. That’s of coarse the only reason anyone invest’s right.
Got 30,000 shares at 0.10$ and 30,000 more between 0.4$ and 0.8$ YES I am one of those holding strong and long
Spencer,
In your reply to the first comment you said, “In the end I could wind up with the same number of Siri shares I had, while having gotten some of them at a discount”. For example, if I have 1000 shares of Liberty, is there a way to estimate the number of Siri shares I will receive when Liberty spins off it’s Siri stake to shareholders ?
Koalaman….
There is no easy way to translate that. In theory, the 3.5 billion shares of SIRI that Liberty will have would be divided into the weighted share count of Liberty.
Koalaman….
We can go by a few assumptions.
1. LMCA shares outstanding is 109,750,000
2. LMCA will control 3,300,000,000 shares of SIRI stock
In theory 3,300,000,000 / 109,750,000 = 30.06
Without talking about premiums or anything else, then 1,000 shares of Liberty would deliver between 30,000 and 31,000 shares of Sirius XM. Plus you are still invested in the core liberty and everything else Liberty has, which you can sell and reinvest into SIRI after the RMT.
When I bought into LMCA they had 2.6 billion shares of SIRI, which meant I was getting about 24 shares of SIRI. Since then they have added to my SIRI stake by between 6 and 7 shares of SIRI while Liberty has gone up from $83 to $104.
The Liberty Sirius XM stake will represents (@3.3 billion shares) about 8.3 billion out of Liberty’s 12.44 billion in market cap or about 75%.
If we assume all is equal, LMCA would, in very simple theory, drop to a $26 equity. You would then have $26k to buy SIRI, which will allow you to buy 10,359 shares.
30,060 + 10,359 = 40,419