In a deal that may not be good enough to resist, Liberty Media Corp. (NASDAQ: LMCA) has offered to buyout shareholders of Sirius XM Radio Inc. (NASDAQ: SIRI) in a tax-free transaction that would exchange one share of Sirius stock for 0.0760 shares of a new issue of Liberty Series C common stock. Existing shareholders of Liberty’s Series A and Series B common stock would also receive two shares in the new Series C stock for each share they currently own. Liberty already owns 52% of Sirius.
Liberty’s CEO, Greg Maffei, plumped the benefit of the transaction to Sirius stockholders:
Our proposal will allow Sirius public shareholders to convert from a non-controlling stake in a subsidiary into a direct equity position in Liberty, the parent company. … We believe the combined company will have better access to capital and all of Liberty’s shareholders — both its current shareholders and the Sirius shareholders who become Liberty shareholders as a result of the proposed transaction — will enjoy enhanced liquidity as shareholders of a $27 billion market capitalization company.
Liberty’s offer values Sirius stock at $3.68 a share, a premium of just 3.1% to Friday’s closing price of $3.57. Sirius will assemble a special committee of its board to consider the offer which requires a vote from the minority stockholders. Liberty’s shareholders will also have to approve the transaction.
Although Maffei did not say as much, swallowing Sirius gives Liberty access to the satellite radio provider’s free cash flow of about $625 million to use in pursuit of Time Warner Cable Inc. (NYSE: TWC). Charter Communications Inc. (NASDAQ: CHTR), in which Liberty holds a 27% stake, has been trying to put together the financing to make an offer for much larger Time Warner. For its part, Time Warner, the nation’s second largest cable provider, is trying to put together a deal with the nation’s largest cable provider, Comcast Corp. (NASDAQ: CMCSA), that would shut Liberty out.
The benefits of the deal to Sirius shareholders are limited to promises of better days ahead, with little in the way of immediate payoff. Like we said, this may be an offer that is not too good to turn down.