Where Does Sirius XM Go From Here?

Well, another needlessly long regulatory decision dictating the future of satellite radio has been made.

Liberty Media (NASDAQ: STRZA  ) can now take control of Sirius XM Radio (NASDAQ: SIRI  ) with a simple majority of the shares outstanding. Liberty Media has been working on this since March of last year, and even that move wasn't much of a surprise. Liberty Media was required to wait three years after receiving a 40% preferred share stake in the satellite radio giant after providing some necessary financing during Sirius XM's dark stretch of early 2009.

Sirius XM got into that predicament because antitrust regulators took more than a year to approve the combination of Sirius and XM, delaying the obvious synergies that cost the company in redundancies along the way.

The FCC's slow-footed manner wasn't as destructive this time around, but what will this mean for Sirius XM in the future?

The free markets don't mind. The stock hit a fresh four-year high this week. In terms of market capitalization and enterprise value, the company has never been this valuable.

The next move -- and every move after that -- will belong to Liberty Media.

Some are speculating that Liberty Media will acquire the balance of Sirius XM now, but that doesn't seem likely. Liberty Media isn't made of money. It got 40% of the company for free, and it's been nibbling its way to an additional 9.8% stake along the way. Going over a total position of 50% will be a formality here, but there doesn't seem to be a reason to go beyond 50.1%. The FCC made that clear last night.

The more likely path at this point is for Liberty Media to spin off its stake in Sirius XM to its stakeholders in a tax-advantaged trust. It's the only feasible way given Liberty Media's ridiculously low cost basis here (again, the 40% preferred share stake was handed over as a door prize for providing $580 million in financing at a steep interest rate that has since been repaid).

Sirius XM has been preparing for this day. CEO Mel Karmazin left the company last month. The board has authorized $2 billion in share buybacks to help combat the supersizing of the float that will take place as some Liberty Media investors cash out of the spin off.

These are interesting times for Sirius XM, but the attractiveness of the model -- making this one of the few media distributors to have enough skin in the content end that its programming costs have actually declined over the past year -- makes betting on Sirius XM far more lucrative than betting against it.


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