Just Let It Go, Sirius XM Investors

It's not just SoundExchange swinging legal fisticuffs at Sirius XM Radio (NASDAQ: SIRI  ) these days.

Some shareholders are trying to get a Delaware Chancery Court judge to delve deeper into the 2009 agreement that ultimately led to Liberty Media (NASDAQ: LMCA  ) taking control of the satellite radio provider.

As a quick refresher, Sirius XM was hurting for cash in early 2009. Despite having finally completed the merger between Sirius and XM months earlier, the company's shares traded for as little as $0.05 with the threat of a bankruptcy filing in the air. There were heavy debt repayment milestones looming, and the profitless company had yet to realize the post-merger synergies it is enjoying today.

John Malone's Liberty Media was one of the two public suitors. DISH Network's (NASDAQ: DISH  ) Charles Ergen was the other. Both media moguls knew that Sirius XM was desperate, and shelling out a 40% preferred share stake in Sirius XM to Liberty Media in exchange for letting it borrow $530 million at a stiff 15% interest rate seemed better than the alternative of filing for bankruptcy.

It's going to be hard to argue that Sirius XM shareholders were hurt by the deal. The stock's a 70-bagger since bottoming out at the time, making it one of the market's biggest winners. Shareholders buying in before Liberty Media's bailout were eyeing the possibility of being wiped out in bankruptcy proceedings. Those buying in after the infusion knew what they were getting into. Liberty Media agreed to wait at least three years before considering an increase to its 40% position. It waited. It got hungry. Regulators approved the feast that resulted in Liberty Media taking majority control of Sirius XM earlier this year.

Life hasn't been so bad for Sirius XM since Liberty Media acquired the shares needed to own more than 50% of the company seven months ago. The 13% gain in that span may not be scintillating, but it is ahead of the S&P 500's 10% return. Despite losing CEO Mel Karmazin late last year, Sirius XM has been resilient, recently striking an intriguing acquisition that will make it a bigger player in telematics.

There will always be dissatisfied shareholders, and one can rightfully argue how much higher the stock would be it wasn't for Liberty Media's loan shark terms. In terms of market cap, Sirius XM's stock would be 67% higher if the 40% preferred share stake didn't exist. However, that's only if we were sure that Sirius XM would've made it over the hump without Malone's money. No one was bellyaching then, and the only reason folks are complaining now is because Sirius XM has proven itself to be a worthy media darling. 

You can't please everybody it seems.

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Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On August 29, 2013, at 7:50 PM, rkorm wrote:

    I bought Sirius at .14/share. I only had a couple of hundred to buy with. Wish I had more at the time. I am holding this for the long run. Not a bad return.

  • Report this Comment On August 29, 2013, at 8:56 PM, zukerman wrote:

    This lawsuit has the same smell and chances of winning as Stern's did. This isn't your average lawsuit where most investors are feeling cheated as you mentioned, but you didn't even take time to clarify that this is the ambulance chasing group that pile in after the press release on a move for control. Malone isn't predictable and has burned many who tried to guess his next move, no laws broken here. As far as the other suit, it'll be thrown out because that court wont rule on decisions made elsewhere. Sound Exchange is trying to grab headlines to save it's existence, period. This will likely provide time to stall the dismantling of the exchange. This will languish in the courts moving from one to the other for quite some time.Most are bypassing the exchange and making their own deals which will make SEs role in payouts moot in the future. Speaking of chasing ambulances, this isn't new news and not much more than regurgitation, again.

  • Report this Comment On August 29, 2013, at 9:41 PM, CaribouPaku wrote:

    Liberty Media's loan shark terms, from you own admission this should be illegal because loan shark loans are illegal are they not? Extortion take the deal or die would be another way to look at it and this also was under duress and again a possible legal defense. From what we are seeing this has not been played out. The loan and interest was acceptable it was the convertible preferred offer for only $12500 that would give them 40% of the company that was totally illegal, it is claimed, and the board were not living up to their fiduciary responsibilities when they approved it not gave the shareholders the opportunity to vote. Nor decide on the ERgen deal with Dishtv.

  • Report this Comment On August 30, 2013, at 6:12 AM, zukerman wrote:

    I would disagree that they shirked their responsibility to the shareholder, I'd owned shares since 2004 and if the deal didn't go through they were worthless. After running up the tab to the point we couldn't pay back capitol loaned during the competition between us and XM, Mel did the right thing. My gut feeling is most of these investors griping about the deal are XM stockholders angry that Sirius won the battle but lost the war. We still suffer from almost 4B shares as a result. XM investors lost huge sums of money after the buyout and saw their share price dwindle to .12 or .05 however you look at it, exhausted, they sold for a fraction. If this is the case, they've had plenty of time to recoup their losses owning Sirius stock. In actuality, this litigation is asking a judge to assign a higher price for a company that was virtually worthless at the time the deal went through, or to throw out the deal completely and that is impossible. Another consideration is, the cost of legal fees will pale compared to the cash made shorting Sirius after the press release hit the wire.

  • Report this Comment On August 30, 2013, at 11:20 AM, AGKLEIN001 wrote:

    loan shark...lol.....more like life saver. the crying has to stop.

  • Report this Comment On August 30, 2013, at 12:05 PM, vesprito1 wrote:

    Rick Munarriz, As usual your non value added

    poor offerings are short again.

    Perhaps you need to look for another venture.

    If this is what you do for a living ,We the SIRIXM

    Family are closing the door on you again.

    We don't recognize you.

    I purchased my first 40,000 shares of SIRI on December 31 , 2008 @ .14 cents a share and never looked back. SIRIXM accomplishments are

    to many to list. The family knows what they are.

    SIRIXM . LONG AND SRONG.

  • Report this Comment On August 30, 2013, at 5:13 PM, SIRIking wrote:

    GREEDY MALONE DEAL IS ILLEGAL BECAUSE MAJORITY OF SIRI BOARD MEMBERS AND EXECUTIVES APPROVED THE OUTRAGEOUS DEAL! As 1 of the posters here said they did not even let the sharholders vote on which deal was more appropiate long term! 40% ownership for free is pure bull**** on top of $530 million loan 15% interest! 15% interest is logical but free 40% ownership is pure bull**** again! Those of you numbnuts who think SIRI had no choice is pure bull because there were 2 offers aside from greedy malone! SIRI needed the cash not ownership change!

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