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No one was surprised by Liberty Media's (Nasdaq: LMCA ) 13-D filing with the SEC on Friday afternoon. The media conglomerate is dismissing its FCC application for de facto control of Sirius XM Radio (Nasdaq: SIRI ) and petitioning now for de jure control.
There's no need to brush up on legal jargon or dust off classical Latin books. Now armed with an effective 48.1% stake in the satellite radio giant, Liberty Media plans to bump its position above 50% for a majority stake in the company.
Between its 40% preferred-share stake in Sirius XM and the various market buys and forward purchase contracts, Sirius XM has control of what is essentially nearly 3.1 billion shares outstanding.
Earlier this year, regulators didn't approve Liberty Media's application for de facto control, with which it would've been able to achieve control of the company without having majority ownership. The company has spent the past few weeks strategically nibbling away at more.
Now that it's essentially a matter of time before Liberty Media achieves control of Sirius XM, let's go over a few things the satellite-radio company can do to make this a smooth transition for its shareholders.
1. Sign CEO Mel Karmazin to an extension
Karmazin took the helm at Sirius XM when it was fetching a higher share price, but he's also a big reason the stock hit a four-year high last week.
In short, Sirius XM needs to lock him up to a new deal before his current contract runs out by year's end.
There's either progress on that front, or Karmazin has made up his mind to move on. Karmazin has indicated that the board should probably have something to announce on the contract before the third-quarter conference call. In other words, they're probably already negotiating an extension. It would be a shock if that announcement is for a new CEO.
Karmazin has succeeded at keeping costs in check, and that's something that can't be said for online-radio leader Pandora Media (NYSE: P ) , where corporate overhead outran revenue in its most recent quarter.
Karmazin will probably want a shorter contract that's rich in exit clauses and golden parachutes if things prove difficult with Liberty Media calling the shots, but that's why it's in Karmazin's best interest to get this done while his buddies on the board still have control.
2. Start buying back stock now
Sirius XM's free cash flow projections seem to grow with every passing quarter. Paying down its debt was a smart option for its bulging pockets in the past, but now it's more important to eat into the company's public float.
Liberty Media's motives are fairly clear. Armed with control of Sirius XM, it can engage in a tax-advantaged spinoff of its Sirius XM stake to its investors. This wouldn't be a new maneuver. Liberty Media spun off its controlling stake in DirecTV (NYSE: DTV ) three years ago.
The move wouldn't be dilutive, but it would create a glut of shares trading publicly. The best way to prevent the float from suppressing Sirius XM's favorable stock movement is to dive into the market as a buyer of shares that it can then retire.
3. Play nice with Liberty Media
Karmazin's tone toward Liberty Media's actions has improved over the most recent conference calls. Maybe he's become the zebra resigned to its fate in the clutch of a lion's jaw, but he also has to realize that it's in the interest of both companies that the ownership transition doesn't weigh down the stock.n After all, the last thing Liberty Media wants is a controlling stake in a stock going down.
Both companies will want to make sure any moves by either side will result in improved shareholder value. This great media story falls apart if both parties aren't on the same side.
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.
I also just put out a premium report on Sirius XM Radio, detailing the challenges and opportunities that await investors that are both long and short the dynamic media giant. A year of updates is also included with the report. Check it out now.