Why This Sirius XM Buyback Matters

The market posted a solid recovery in Wednesday’s trading session following the market carnage in Monday’s and Tuesday’s trading sessions. After the markets recovered handily, Sirius XM Holdings Inc. (NASDAQ: SIRI) took the opportunity to announce an additional $2 billion to be added to its share repurchase authorizations.

While the company said that shares of common stock may be purchased from time to time on the open market, they also noted that these could be bought in privately negotiated transactions — including in accelerated stock repurchase transactions and transactions with Liberty Media Corp. (NASDAQ: LMCA) and its affiliates.  The company further said that it will fund the repurchases through cash on hand, future cash flow from operations and future borrowings.

Previously, the board of directors approved a $2 billion common stock repurchase program back in December of 2012. Since then Sirius has supplemented that authorization with the approval of an additional $2 billion common stock repurchase program in October 2013 and July 2014.

This new approval increases the amount of common stock Sirius has been authorized to repurchase to an aggregate of $8 billion.

According to Sirius XM:

The announcement of the extension of the repurchase program reflects the Board’s desire to continue to return value to stockholders and its confidence in the long-term growth prospects of the company’s business.  Sirius retains sufficient capital capacity to continue making long-term investments in its programming, research and development initiatives and overall operations, as well as to pursue strategic opportunities that may arise.

The company’s market cap is right at $20 billion and the new authorization would make up approximately 10% of its outstanding shares. At Wednesday’s closing price this authorization alone would total nearly 20 days of trading at the current average trading volume.

Those investors who love buybacks should also keep in mind that Sirius XM remains among the most heavily shorted stocks of them all.

It is worth noting that Liberty Media owns directly or indirectly over 50% of Sirius’ outstanding common stock, at least as of the 2014 Annual Report. According to the annual report from Sirius:

On October 9, 2013, we entered into an agreement with Liberty Media to repurchase $500 million of our common stock from Liberty Media at a price of $3.66 per share. Pursuant to that agreement, we repurchased $160 million of our common stock from Liberty Media as of December 31, 2013. On January 23, 2014, we entered into an amendment to that agreement to defer the previously scheduled $240 million repurchase of shares of our common stock from Liberty Media from January 27, 2014 to April 25, 2014, the date of the final purchase installment under the agreement. On April 25, 2014, we repurchased $340 million of our shares of common stock from Liberty Media. We entered into this amendment at the request of the Special Committee of our board of directors that was formed to review and evaluate the Liberty Media proposal described below. That Special Committee is comprised of independent directors.

On January 3, 2014, our board of directors received a non-binding letter from Liberty Media proposing a transaction pursuant to which all outstanding shares of our common stock not owned by Liberty Media would be converted into the right to receive 0.0760 of a new share of Liberty Series C common stock, which would have no voting rights. Our board of directors formed a Special Committee of independent directors, consisting of Joan L. Amble, Eddy W. Hartenstein and James P. Holden, to consider the proposal. On March 13, 2014, Liberty Media announced that its proposal was no longer applicable.

Sirius shares closed Wednesday up 2.5% at $3.72 on its 52-week trading range of $3.14 to $4.04. In the after-hours trading session shares were up an additional 1.1% at $3.76. The stock has a consensus analyst price target of $4.60.

Liberty Media shares closed Wednesday up 3.4% at $36.15 on its 52-week trading range of $31.04 to $40.50. The stock has a consensus analyst price target of $46.27.

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