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Is DirecTV Hitting on Sirius?

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Shares of Sirius XM Radio (Nasdaq: SIRI  ) are trading 15% higher this morning, after investors began to connect the dots behind yesterday's deal to combine many of the assets in John Malone's Liberty Entertainment (Nasdaq: LMDIA  ) with DirecTV (NYSE: DTV  ) .

Liberty's 40% stake in Sirius XM isn't part of Liberty Entertainment. It's actually part of the Liberty Capital (Nasdaq: LCAPA  ) appendage. However, it is widely believed that Malone consolidating his stake in DirecTV with the satellite television leader itself will enable DirecTV the flexibility to go on a shopping spree.

Speculators may be bidding up Sirius XM today, under the assumption that it's the next media consolidation target.

Really? I don't see it happening, at least not now. Malone is in no hurry to broker a deal for Sirius XM. Liberty Capital is collecting juicy 15% interest on most of the money he lent to the satellite radio provider. The 40% stake in Sirius XM has multiplied in value in just a couple of months.

Sirius XM's poison pill provision exempts Liberty's significant stake in the company, but it doesn't mean that it's going to shoo DirecTV and Sirius XM into a room and look the other way. For starters, keep in mind that DirecTV is crushing its nearest rival DISH Network (Nasdaq: DISH  ) in satellite television. If regulators took a year and a half to let Sirius and XM shack up, imagine how long it will take before it lets Sirius, XM, and DirecTV book the honeymoon.

There are plenty of no-brainer deals that can be brokered. DirecTV can bundle its service with a satellite radio or Sirius XM Web radio subscription. DirecTV can provide video content for Sirius XM's fledgling Backseat TV offering.

DirecTV and Sirius XM -- as premium satellite-based entertainment subscription services -- fit together like chocolate and peanut butter. However, now that Sirius XM is starting to generate positive operating cash flow it seems unlikely to punch out for pocket change. Malone already has a free lottery ticket with his 40% stake. A combination doesn't make a whole lot of sense right now, but it may if Sirius XM's cash flow isn't enough to cover its debt obligations next year.

Until then, the wedding bells are probably bogus.

Some other Sirius stories:

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Longtime Fool contributor Rick Munarriz is such a fan of satellite radio that he subscribes to both Sirius and XM. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (40)

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  • Report this Comment On May 05, 2009, at 5:32 PM, JoeHoffman wrote:

    This is the best article I've read on the new activity between liberty and direcTV. I really appreciate you clearing the air,

  • Report this Comment On May 05, 2009, at 6:28 PM, homer985 wrote:

    Rick, might I direct your attention to a somewhat recent WSJ article (February 21, 2009) entitled:

    "The Lure of Sirius: Tax Losses" - This article pretty much had the entire scoop of what is going on with Liberty and Sirius.

    Liberty is sitting on the potential to have $2BB in tax writeoffs, by keep Sirius exactly as it is for another 2 years or so. Another corporation change for Sirius within this time period, puts it in the position of losing as much as 80% of its $6BB in NOL carryforwards.

    The discussion that someone is trying to buy-up Sirius and Sirius is letting it get bidded up... and that is why they put the Poison Pill in place... is unfounded. A simple read through and full understanding of Sirius' filings; and the impact of having a holder control 40% of the voting stock of the company -- pretty much explains all everyone needs to know.

    Liberty will benefit greatly by letting it sit until 2011. Sirius stands to lose greatly by allowing someone to buy it up and they lose the NOL carryforwards. Losing those would be a significant hit the asset value of Sirius... thus making it not worth as much to an acquiring company.

    The discussion has been quite rampant and fanned by several from a few Sirius fan blogs -- who really do not understand what they are reading.

    As you know, the Liberty capital structure is quite complicated... more so than most other companies.

    With the realization that Malone has 40% of the voting stock in Sirius -- what does he stand to gain by combining that asset in with the newly formed DirecTV Group that is being created out of that merger? Keeping in mind that he only owns 24% of that company. Does everyone think that he'll just say "here, take it?".

    No, that's not the way it works. His equity holdings in Sirius is worth north of $1.1BB now; and the debt is valued at $530MM (par value). That's over $1.6BB. Malone is going to want something from DirecTV in return for his Sirius stakes. More equity in DirecTV will not give Malone that much more stakes in that newly formed company. Malone would end up losing out on that deal in the end.

    Again, I suggest reading the WSJ article, if you haven't already. It explains a lot. I'd post the link, but don't want to break any rules. Google the headline and a transcript will turn up.


  • Report this Comment On May 05, 2009, at 7:16 PM, DiscoFinance wrote:

    Liberty Media will post the DO have plans with SiriusXM. Earnings will receive positive reaction--whether they deserve it or not. Uptick rule and spotlight on shortsellers (see movie about Sirius released next month at ) will help slow down abusive market manipulation. Movie will bring national attention to company. This stock will rise all the way to the film's release!!!!!!

  • Report this Comment On May 06, 2009, at 12:37 PM, beerman53 wrote:

    I have been hearing some talk about the growth of these two companies by synergy. Currently as we all know the Sirius xm music provided by Directv is a plus. Consider the added possibility of Itune purchases on the screen and the mobile streaming of for the moment single channel TV through the subscribers existing antenna for an added fee. No need for huge sat panels on the roof of your truck or RV. It may not be today , But I hear its coming

  • Report this Comment On May 07, 2009, at 2:53 AM, janejim76 wrote:

    Banks have huge debts, but they're getting a helping hand from the federal government. If you have overwhelming debt--perhaps from bad investments, or maybe a job loss, a medical crisis or just plain overspending--you're probably on your own. Check the website

    to see if they can help. I am glad I did read it before I talk to my CC company and it helped - Jane Jim, California

  • Report this Comment On May 09, 2009, at 1:58 AM, mberan wrote:

    Love the talk of someone "manipulating" this stock. Maybe there was someone else on the grassy knoll too!

    SIRI is nothing more than a penny stock.

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