SIRIUS XM Radio Inc. (NASDAQ: SIRI) shares have been creeping higher in the last couple of days on hope that Liberty Media Corporation (NASDAQ: LMCA) will take the satellite radio giant over. The media and blogging headlines point to merger hopes, but at least one reputable firm is outlining why this may not actually be the case. There has been a boardroom battle between the two management teams. The SIRIUS stock gain has been about 7% in the last two trading days due to a renewed expectation that Liberty will try to acquire the rest of the company.
Canaccord Genuity’s analyst named Thomas Eagan has noted, “We do not think this is the case because Liberty can monetize its stake without increasing it. Moreover, we’d be surprised if Liberty spent $1.5 billion for an additional 10% after getting 40% for less than half that.”
The firm actually noted Liberty’s potential spin-out of SIRIUS. Eagan noted, “We believe a spin-out of its 40% SIRI stake would help monetize the investment. Liberty could comply with Reverse Morris Trust requirements by adding True Position, SIRIUS debt and cash to the spin to net to 50.1%+ of the Sirius NewCo.
It was also noted in the report that recent filings reflect diverging strategies and that the takeover belief stems from Liberty’s recent FCC filing from March 20 which indicated that Liberty believes it has a de facto control of Sirius after the expiration of its standstill agreement and due to its 40% stake. Sirius has reportedly replied to the FCC saying that it does not agree with Liberty’s assessment.
Liberty Media has an $11 billion market value and is one of the John Malone entities. SIRIUS XM now has a $9 billion market value but its heavy debt load still has the company as having a negative total net tangible assets value of -$3.7 billion as of the end of 2011.
JON C. OGG