Liberty's Move Is a Win for Both Companies' Shareholders

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Late last week, Liberty Media (NASDAQ: LMCA  ) announced its interest to take full control of Sirius XM (NASDAQ: SIRI  ) -- a not-so-surprising move. Liberty is already the controlling shareholder of Sirius, but now seeks full managerial control over the satellite radio operator. The deal to purchase the remaining shares values Sirius at $3.68 per share. More importantly, it's tax free as each Sirius share will be converted into a fraction of a Series C Liberty Media share. So far this week, investors in Sirius look to be supportive of the move, while Liberty Media's shareholders aren't so sure. Here's what you need to know and where to put your money.

Financial engineering
Liberty Media Chairman John Malone knows exactly how to build long-term value in his company. His acquisitions have not only been immediately accretive to the company but structured impeccably. Sirius XM is the pinnacle of this method, so far.

Instead of an all-cash transaction, which would take on a hefty tax charge, the Sirius acquisition will be done in shares. Sirius shareholders will receive 0.076 shares of Series C Liberty shares, while existing Series A and B Liberty shareholders will receive two shares of the new Series C stock. It's a beautiful, tax-free transaction that would leave existing Sirius shareholders a 39% stake in the new $27 billion Liberty Media.

Who wins?
The deal is Liberty's latest effort to consolidate the media business. Along with its quarter stake in Charter Communications (and Charter's courtship of Time Warner Cable), Liberty's control of Sirius is part of Malone's master plan in the cable TV business. The result would be incredible operating efficiencies, pricing power, and lots (and lots) of cash.

Sirius shareholders get a slight premium (though now erased, in Monday's trading) in the buyout, but are awarded a more important asset than cash -- Liberty stock. The stock is free exposure to the future of cable -- an idea tied very closely to Liberty Media.

Overall, though, this is a bargaining chip for Malone. By bringing Sirius fully in under the wing of Liberty Media, Malone and Liberty are well armed in their quest for cable TV dominance. Liberty can more easily raise money with the cash-printing Sirius XM feeding directly into the coffers. At least, that's what John Malone has used as his reasoning for acquiring the rest of the company.

As has been the case for some time now, investors betting on the long term should focus on Liberty Media. This company is aggressively moving to shape the future of its industry—more so than any other. The Sirius acquisition is not a game changer in itself, but instead another piece of the puzzle. For Liberty and Sirius shareholders, view this as another win.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 06, 2014, at 3:04 PM, nofoolingforme wrote:

    What planet did you come from? Siri shareholders will come out the losers in this deal and everything that I am reading, except for your uninformed article, states that they know they are being cheated and will not agree to it. Come on man, either get your facts straight or stop writing?

  • Report this Comment On January 06, 2014, at 5:24 PM, sirifair6 wrote:


    Below are your words,

    "So far this week, investors in Sirius look to be supportive of the move,"

    Could you provide any evidence in support of your statement. So far, the reaction has been 100% "NO" from siri share holders.

  • Report this Comment On January 07, 2014, at 6:56 AM, djplong wrote:

    Liberty tries to buy the rest of SIRI at 50 cents off it's recent high with most analysts projecting a $4-$5 share price within a year while Liberty's stock MIGHT appreciate 10% and that's GOOD for SIRI shareholders?

    Sorry - this long-time SIRI shareholder says they have to sweeten the deal.

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Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

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Related Tickers

9/3/2015 3:59 PM
LMCA $37.49 Up +0.13 +0.35%
Liberty Media CAPS Rating: ****
SIRI $3.80 Down -0.02 -0.52%
Sirius XM Radio CAPS Rating: ***