Shares of Sirius XM have been inching higher lately on speculation that Liberty Capital is positioning itself to own more than the roughly 2.6 billion shares that it's currently entitled to receive.
The buzz began last week, when Liberty chief John Malone decided to do away with Liberty Media's tracking stock structure. The market isn't valuing his empire fairly in parts, so combining Liberty Starz
Yesterday, a "source close to the situation" told The New York Post that Liberty is in early-stage talks to increase its stake in the satellite radio darling that it rescued from the brink of bankruptcy two years ago.
Hearsay? Well, tell that to Miller Tabak's David Joyce. The analyst is upgrading shares of Sirius XM this morning, partly on the possibility that Liberty Capital will increase its position in the satellite radio giant.
Joyce is going from "hold" to "buy" as he raises his short-term price target on the stock to $2.20 and long-term goal to $2.50. Sirius XM's perpetually improving fundamentals warrant the rosier outlook, but it's not a coincidence that two analysts have now bumped their ratings higher since Malone's move.
How much can Liberty buy? It can't swallow Sirius XM whole. Sirius XM packs an enterprise value of $14 billion once you add its net debt to its market cap. Liberty Capital's stake is worth less than $5 billion right now. There's no way that it can raise $9 billion from change between its seat cushions, and that's before considering any kind of buyout premium. There just aren't too many companies out there that can consume a company with a whopping 6.5 billion shares outstanding.
However, Liberty Capital can begin to nibble at the stock. Malone didn't have to pay a penny for its 2.6 billion shares. It simply received a 40% stake in the media company after beating out EchoStar's
Sirius XM's hefty enterprise value and its meaty cumulative tax losses that can be used to offset the tax bite on future profits make this a delicate situation, but one that Liberty appears to be exploring.
There's never a dull moment with Sirius XM, but these past few days have been far more eventful than usual.
If you want to see how Sirius XM stands up to the stream teams, add Sirius XM Radio to My Watchlist.
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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 Capital. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.