Liberty Media's (Nasdaq: LCAPA) John Malone hasn't said much since his company's financially lucrative rescue of Sirius XM Radio (Nasdaq: SIRI) two months ago, so it was great to hear his thoughts in a Denver Business Journal interview this week.
There are several reasons behind the strategic decision to offer up $530 million of funding to keep Sirius XM out of the clutches of Chapter 11 bankruptcy. Let's go over what appear to be the four biggest reasons.
1. It's a smart money move
"Initially it's a financial play," explains Malone, when asked what's in it for Liberty. He's right. This isn't just $530 million for a 40% stake in the company. Sirius XM has to repay the loan, mostly at a steep 15% interest rate. Malone wasn't going to get that kind of return elsewhere.
2. There aren't a lot of choices out there
"Sirius XM's the only example of someone that's in our space that's waving the white flag and willing to take in substantial capital at market rates," Malone tells the paper. Despite the beating that media stocks have taken over the past year, with some on the cusp of bankruptcy, it's apparently still a sector where the players are too proud to panhandle.
3. The pieces fit
Malone also describes the move as "strategic" given Liberty's other investments. "Obviously we have a large stake in DirecTV (NYSE: DTV), and how Sirius could play into that is an important consideration, but it's not on the table today."
Analysts have been talking about the possibility of bundling DirecTV satellite television with Sirius XM satellite radio, but Malone doesn't appear to be in a hurry to connect those dots just yet.
Given Liberty's portfolio -- with stakes in companies like Ticketmaster (Nasdaq: TKTM) and Expedia (Nasdaq: EXPE) -- it's really just a matter of time. After all, Ticketmaster is merging with Live Nation (NYSE: LYV) to become the undisputed leader in event ticketing and venue promotion. As Sirius XM fleshes out its branded music channels, the touring tie-ins are obvious. Travel portal Expedia can even play a part in completing the touring experience.
4. It keeps a toy away from rival Charlie Ergen
Until Malone stepped into the bidding war for Sirius XM, EchoStar's (Nasdaq: SATS) Charlie Ergen seemed like the likely savior. Letting Ergen win would have turned Sirius XM into a "possible strategic asset we wouldn't be able to influence," according to Malone.
But he hasn't closed the door on working with Ergen to cash in on Sirius XM in the future. "If Charlie has a great idea on how to exploit the asset, we may end up doing something with Charlie," Malone tells the Denver Business Journal.
However, Malone clearly wants to be the gatekeeper of those discussions. He definitely fills that role right now, and so much more.
More news than static on Sirius XM:
“Make Big Money With Options” Motley Fool CFO Ollen Douglass recently made over $100,000 buying options on 7 well known stocks. Now we’re committed to turning his small fortune into a massive one! And we want you to join us! Enter your email address to hear more:
Terms & Conditions
RSS Headlines
Fool UK