Sirius XM Radio (Nasdaq: SIRI) has made it clear that it doesn't want Liberty Media (Nasdaq: LMCA) to take de facto control of the satellite radio giant. Shareholders may be singing a different tune if Liberty Media chooses to go the other way.
Sirius XM's stock took a 3% hit yesterday after Canaccord Genuity analyst Thomas Eagan suggested that Liberty Media may choose to cash out of its 40% preferred share stake in Sirius XM or spin it off to shareholders.
The buzz in recent weeks is that Liberty Media may try to bump its ownership toward a majority stake, but Eagan doubts that Liberty Media is willing to fork over the roughly $1.5 billion that it would take to buy an additional 50% stake.
The tax advantage of Sirius XM's billions in net operating losses and its juicy current cash flows are clearly compelling, but Liberty Media obviously doesn't want to overpay for those perks.
This saga has been heating up since Liberty Media's ownership restrictions expired on March 6.
Now things will get even more interesting. Liberty Media can't try to bluff Sirius XM here. It can't go public with intentions to spin out its position or convert its preferred stock and cash out because either move would likely send Sirius XM's stock lower. There are plenty of shares out there already. The last thing the market's supply vs. demand equilibrium needs is another 2.7 billion shares of Sirius XM on the open market.
However, neither party is likely to stand still here. It's hard to fathom Liberty Media simply sitting on its 40% stake a year from now. One way or the other, something's got to give.
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.
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