Liberty Media Would Love To Own SiriusXM But Wont Chase It
This week the subject of Liberty Media buying out SiriusXM raised itself again when Greg Maffei stated, “Sirius holders wish they took the deal”, referring to a proposed deal at the beginning of 2014 that had Liberty effectively paying about $3.86 per share to get the half of the company it does not own. Since that offer SiriusXM has not seen that type of stock price, and the equity currently is trading in the $3.20’s.
The initial deal made a great deal of sense but had same passionate opponents. In most cases, those oppsed to the deal did not really understand the workings of it. Ultimately Liberty withdrew the offer and SiriusXM has floundered ever since. SiriusXM brings in a ton of revenue and would be a great fit as a wholly owned entity in the Liberty Media franchise. I have been invested in both Liberty Media and SiriusXM for quite some time.
Liberty has expressed that it will not chase a deal, but does not hesitate to point out the some great tax advantages could be realized if a deal were to happen. The big issue here is that a deal only makes sense at certain prices. Meanwhile, Liberty does not really have to move quickly because it already owns over 50% of SiriusXM and its stake keeps going up due to SiriusXM buying back shares on the open market. Simply stated, Liberty can afford to be patient and does not need to “over-pay” for a company it already controls.
In my opinion, if another buyout offer surfaces, SiriusXM’s board and minority investors will give it serious consideration. While an offer will not deliver a massive premium, the ultimate solution may allow for this equity to grow some legs and appreciate.
I’m not sure why SIRI investors would wish they had taken the deal. It’s not like LMCA has held price either, and the offer was an equity swap. Odd comment for Maffei to make especially considering that had SIRI investors taken the swap and had Liberty’s price done the same as it has done this year, holders would have a similar valuation.
Had Liberty’s price gone up relative to SIRI I could understand a comment like this but looking at it from the standpoint of a cash buyout doesn’t make sense. Both stocks have traded in relative parity.
This is obvious. Liberty is now a strong tracker of siri. As of October 29, liberty without broadband will be 100% tracker of siri. Now, you ask yourself a question, “Will liberty be harming itself?”
They still do not have access to siri’s cash and their cash generation is minimal compared to siri. Now, you ask yourself another question, “Do they need siri’s cash after having spun off the broadband?” Most likely, not as much as they used to with broadband.
Now, you ask yourself another question, “Is the merger as important today for liberty as it was with broadband?” My answer is, “not even close as important”. This means that liberty may not be in a hurry.
Under the new circumstances, with liberty without voracious broadband, my preference would be for the two companies to merge (before I was 100% against such merger because of the fear that liberty would be spending siri’s cash on broadband acquisitions rather than on buybacks). If the exchange price is right (over $4) I will vote for the merger because such merger would remove any uncertainties remaining about liberty’s plans, and the market loves pure play.
The original deal was rejected because of the price and the complexity of it. I own a lot of Sirius XM and I don’t regret voting against the deal. I won’t sell something to somebody just because they make a good offer. I want to get full price for what I own. I think that represents the sentiment of many shareholders. Now, you can look back and say, ah, if I took the deal I would have more money now… Well, the new stock would have been down too.. And since Sirius is still growing strongly, we can consider it pretty cheap at these levels and will likely go higher. Buy more if you honestly believe in the company and its future.
Ignoring all this, investing, despite what logic might say to the contrary, is all about emotion. The offer price was below what Sirius XM had been at in the months before the offer. The price was low, and all around, worthless tech companies with no cash flow or assets were being bought out for billions (and still are). The market was rising and sentiment was positive. Did Liberty honestly believe that holders of Sirius, who had been through so much trouble in the last decade, would accept an offer of $3.86? Why such an arbitrary number…? Honestly, I think if Liberty had just offered something in the $4 range, just slightly more, they would have gotten approval. The sentimental barrier between $3.86 and $4 is massive for Sirius holders. Liberty was too cheap to get it done.
Personally, I say the hell with Liberty. I don’t want to deal with people like that. We are all in bed together now, in terms of ownership, but I would protest any new offer just for the hell of it. I think any Sirius XM holder, even if you bought in at a ridiculously low price in 2009, is upset about how this company and its retail shareholders have been screwed with over the years.
Also, I think the article might have the numbers backwards.
“proposed deal at the beginning of 2014 that had Liberty effectively paying about $3.86 per share”
Now that I take more time to think it over, wasn’t the offer for approximately $3.68 per share? With the ratio it would move up or down, but I don’t think anyone expected $3.86 from that offer.
Was your $3.86 figure a typo?
Since the offer worked out at the time to around $3.68, what would that offer be worth if made at today’s close? IOW what would the ratio work out to be now since both SPs have declined?
Maffei is an arrogant sob making such statements while being Chairman of Sirius. He should be humble when talking about the company that will virtually be liberty starting November
The original deal was lousy for two reasons:
1. Liberty could waste siri’s fcf on its broadband schemings instead of continued buybacks.
2. The price was lousy.
If liberty goes after siri again, it will be a different liberty pursuing siri – without broadband. It will be a liberty company whose value is 85% to 90% Sirius XM. If the price is right next time around I will vote for the merger because the companies will be aligned 100% without the broadband.
As to smirking about us lamenting not taking the deal, look at where liberty’s stock is now – in deep sh#t like siri’s. For liberty to grin at siri is like for two mountain climbers to argue while climbing. Starting November liberty is virtually Sirius XM. The difference is that lmca will be penniless unless they sell Atlanta Braves while siri will continue churning out over $1B in fcf with liberty salivating. If they decide to pay themselves a dividend I will be happy since I will get it as well.
If I were liberty I would not be so cocky when talking with their goose laying gold eggs. The direction of the two companies can be forward only if they are TOGETHER. After the broadband spin off the companies will be attached at the hip and a merger is zillion times more logical than before because liberty will be doing exactly what it does best – growing revenue, EBIDTA and fcf and buying back shares to reward us, the investors. On top of that, the uncertainty about liberty’s behavior toward siri will be gone.
I am amazed that you presented siri’s situation with liberty in such simplified herd oriented terms.
Also, from my experience as an investor over 14 years, I would have to say, the moment an exec mentions publicly that he will not “chase a deal,” the chances are about 100% that he is going to absolutely chase a deal.
Expect another offer within 3 months. I would preemptively urge you all not to even think of accepting anything below $3.85, regardless of where the market or Sirius stock price might be.
As soon as liberty spins off its broadband on October 29 liberty and siri will be virtually the same company with 100% aligned interests. This is going to be what I call a pure play where both siri and liberty are vested in the success of each other.
I will not entertain any merger number with equity swap under a $4 ratio and will vote with my feet. No matter how much liberty tries to spin it or put on a happy face if it wants real access to siri’s cash it needs to pay up. Period!
The great news is that the voracious guerilla, that is the broadband, will be gone and will make the merger much more attractive to siri investors as I explained earlier.
To say that siri shareholders hurt themselves having not accepted the original offer is nonsense. The failure of liberty to make the deal happen was even worse for liberty than siri. If we ask ourselves an honest question as to who needs whom only a fool will claim that siri needs liberty. It is not only obvious to negators that liberty needs siri zillion times more than otherwise. Liberty is a shell of a company with very little income and big numbers on paper.
However with shedding of the broadband the companies will be inseparable and liberty will become virtually siri’s tracking stock.
When Maffei says that this is not something to chase, does he mean that they are currently satisfied with their position at Liberty and that there is no “hurry” to get a deal done even though it makes strategic sense ultimately to have it happen? Or, does it mean that they want to get the whole thing for as little as possible and they won’t pay top dollar for it? Paying $4 today would be “cheaper” than paying $3.68 last January simply due to the reduction in shares (or the share swap equivalent). Liberty saves even more by not offering cable assets as part of the merger (Broadband…). I’d suspect Liberty can offer “more” to get all of Sirius, but “more” is just an illusion…be interesting to see how this all plays out. They won’t chase a deal, but Sirius is trading cheaper now than in a long time! Why not bite? I think not chasing has more to do with being patient and opportunistic (waiting for Broadband) than it has to do with getting Sirius for as little as possible. I agree they won’t pay top dollar…but they aren’t looking to steal the company from under shareholders’ feet either…in my opinion.
You are right that for Malone “buying” siri today at $4 would be cheaper than last January at $3.68 (exchange ratio).
One scenario could be where liberty would continue watching siri buying back shares and increasing liberty’s (and your and my stake). At tyhe same time the share price will have to go up because there is always a limit to cretinism of those who pretend that nothing is happening. In two years there may be over $5B revenue and $1.5B fcf. How long can one ignore that the compnay is super healthy and has not only grwoth potential but alos relaizing it strongly!? In this scenario the only way liberty could get access to siri’s cash would be via dividends, including to us:)
Or, liberty could make a fair offer being over $4 per share and have 100% access to siri’s cash. I would vote for the merger because my interests and Malone’s would be aligned this time and, what is very important, any uncertainty about liberty doing this or that would be removed. The merged co would be a pure play with liberty increasing the value of its own business as much as possible!!!
Let us not forget that today’s liberty is a shell co with very little money on its hands. This is why another bid for siri is more likely than not.
“they aren’t looking to steal the company from under shareholders’ feet”
Of course they are. This is not even a question. Any finance guy will tell you that when you make a deal, your goal is to get a company for as cheap as possible. If they need 51% of the investors to agree, then at the end of the day, all they want is for 51% to agree. They don’t care about anybody else, as long as they get the deal done, for as cheap as possible.
And don’t take my word for it. Look at how opportunistic Liberty has been in the past. Does anybody even know exactly what their average buy in for Sirius is? It’s probably in the pennies…. And they still won’t spend a bit more to take over the whole thing. It’s not even about being cheap, it’s about squeezing every last dime out of a deal.
If they wanted it cheap they could pick it up now, or they could have gotten it for $2.98 recently. In my view, there is more here than what meets the eye. They can…in time…get all of Sirius for less money…and simultaneously offering SIRI shareholders more value than the previous offer…all because the number of outstanding shares is considerably smaller.
We all want a good offer, but the bottom line is that we should be prepared for another crap deal to be launched our way sooner or later. Hypothetically, if the market goes south in a bad way (another couple thousands point down on the DOW), and Sirius stocks trades in the mid $2 range, expect Liberty to “come to the rescue” with an offer in the high $2 range, or maybe at $3. A whopping 25% premium to the price over the last 30 days (hypothetically $2.50). Maybe it works out, maybe it doesn’t but they will try.
Then we will have to make noise to try to influence other retail and institutional holders to vote against it. It’s easy for them and hard for us… We should all hope it doesn’t happen, but we should not be surprised if it does.
No matter how much I would like to tell you that you are wrong you are still right. My only hope is that institutional investors are not for sale.
I have been saying for quite a bit of time that there is from none to very little correlation between siri’s performance and share price. I hope that the company will show such strong results in the next six to twelve months that it would be hard to ignore or dismiss it.
“…referring to a proposed deal at the beginning of 2014 that had Liberty effectively paying about $3.86 per share to get the half of the company it does not own.”
I thought the number was $3.68!!!
haven’t done the math, and won’t, but maybe someone else will:
had Liberty offered $4 in first offer that would have been .32cents more and maybe about $1.5-2B more. However, now that they own a greater % and Sirius has bought back almost $4Billion in shares, that’s a lot less Liberty has to now pay for the non-Liberty owned shares.
so, even at $4 now, they likely will pay less than the $3.68 offered back in early ’14.
maybe one of you smart ones can do the exact math, but you get the idea
if liberty was truly interested in buying the company they would be doing forward purchases along with the buy back. The stock is so cheap compared to their 3.86 offer that they could exponentially increase their % and they are not doing that. So i doubt they are gonna come back any time soon
First, the exchange offer was $3.68 raher than $3.86.
Second, why anyone in sober mind would be buying when siri is buying back for them. At the end of this quarter, liberty may have 58% ownership.
The good news is that now I do not care as much as I used to because liberty will have shed its broadband by October 30 and become a pure play tracking siri. Now, liberty stock can go up only and only if siri goes up. This is a huge turn around. I cannot imagine Malone seeing siri stagnant. Believe me, he will find a way to boost siri, he always does.
they buy it back because one way or another they will still be spending money. if there is 42% left to be bought to take control and everyone ranting the 4 buck range is fair then why not take out another 5% or more in the 3.20s
Still, do not understand your logic. Why spend $500M that liberty does not have when siri will definitely spend probably $700M+ in Q4 increasing liberty’s ownership further? This is a win-win game for liberty.
What liberty is and will be missing in siri being a standalone company is siri’s cash, plenty of it. The only way they can get to it would be by making siri issue dividend to liberty and, coincidentally!!!, to siri shareholders. No complaints in this case:)