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The battle for control of Sirius XM Radio (Nasdaq: SIRI ) is heating up, and shareholders are enjoying the ride.
Shares of the satellite radio giant climbed nearly 5% on Friday, after Sirius XM asked regulators to dismiss a Liberty Media (Nasdaq: LMCA ) application to gain majority control of the company.
Well, let's go back to the early 2009. Sirius XM was in trouble. The company had chunky debt repayment milestones it couldn't pay on its own. Liberty Media's John Malone and EchoStar's (Nasdaq: SATS ) Charles Ergen stepped up as vocal sugar daddy candidates.
Malone and Ergen were -- and continue to be -- major power brokers in satellite television. It was easy to see them get behind the potential for premium radio, especially after Sirius and XM had completed a 2008 merger that made Sirius XM a promising monopoly in satellite radio.
However, Malone and Ergen also saw the value in the billions of net operating losses amassed by Sirius XM over the years that could be used to offset future taxable liabilities.
Liberty Media emerged victorious, walking away with a 40% preferred share stake in the company. However, Malone would have to wait three years before increasing his stake if he were eyeing majority control of Sirius XM and its tax-loss carryforwards. That restriction expired March 6.
Liberty Media hasn't gone public with its plans outside of its Federal Communications Commission filing that would give it the flexibility to take control of Sirius XM. The popular theory is that it will make a move to acquire another 11% of the company, pushing its ownership to a controlling 51% stake that it can either spin off or pad with profitable properties to take advantage of the favorable taxation situation.
Why would Sirius XM's stock climb higher if the media giant is moving to block any kind of open market purchases or tender offers on behalf of Liberty Media that would drive the stock higher? Well, the move seems to confirm that Liberty Media is serious about making something happen. It could also be Sirius XM playing hardball to make sure Liberty Media pays a fair price here.
Either way, this exciting chapter in Sirius XM's history is just getting started. There hadn't been a whole lot of news since Sirius XM's strong fourth-quarter results two months ago.
There's nothing wrong with sleepy yet steady execution, but now we have a real catalyst that will move Sirius XM one way or the other depending on what Liberty Media does or does not do.
Stay close, premium radio fans. The plot's starting to heat up again.
Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.
XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next rule-breaking multibagger, a free report reveals all.