Sirius XM Doesn't Want to Lose Control

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.

Confused?

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.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Liberty Media. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (3) | Recommend This Article (8)

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  • Report this Comment On April 02, 2012, at 10:30 AM, BuffettIII wrote:

    Rick:

    The fact that Liberty is even making a bid is an indication that Sirius likely just posted its most profitable quarter in company history.

    So what happens if Liberty does grab another 11% and effectively takes 440 million shares off the market?

    :)

    Rhetorical question. Either way, I'm in.

    Buffett III

  • Report this Comment On April 02, 2012, at 10:36 AM, southernbeachguy wrote:

    Thank you Rick, over the past 3 years Bashers have been writing terrible articles about the potential demise of Sirus. Potential Investors have listened to those so called experts and lost out on one of the most profitable runs of a stock that I have ever seen. It is ashamed that people have listened to them and lost great gains. You on the Other Hand have touted the great potential of Sirus and whomever has listen has been rewarded. I, myself, at this minute am up 519% in past 42 months. Great job Rick.

  • Report this Comment On April 02, 2012, at 10:45 AM, doubting wrote:

    It appears it was not just the management but rather the BoD who rebuffed liberty's FCC application for access to siri's licences. This is critical.

    In my view, there is zero chance in today's political and legal environment that liberty would gain control of siri pursuiing this avenue. The only real choice for them is to pay a premium. By payinjg a premium I mean buying at least another 10%+ of outstanding shares. This move will make the stock sky rocket.

    In view of liberty's predator move, instead of buying back shares siri may choose to start paying off its $3B debt with a pile of cash it will be accumulating starting as early as this year. Technically, siri could pay off at least $1B in debt already this year.

    Unfortunately, the emerging stalemate will not help the stock much. Paying dividends is not a good idea, in particular when liberty is behaving like a bull in a china shop. Why reward them for such vulturous behavior? The good news is that liberty cannot influence a lot of board decisions because of the arm's lenght rule.

    This is the last year of Mel's contract. He is definitely the force standing in liberty's way based on his earlier interviews. I hope the board will make a correct decision that will keep the wolves fed and the sheep alive, if this is possible at all. I still believe that Mel is critical fo siri's success.

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