Recently, Liberty Media Corp. (LMCA - Analyst Report) filed a new application named Form 4 to the U.S. Federal Communications Commission, as the company has further acquired 1.88 million shares of SIRIUS XM Radio Inc. (SIRI - Analyst Report) .
Liberty Media bought these additional shares of SIRIUS XM for about $5.2 million or $2.749 per share. So, a further purchase of 1.88 million shares of SIRIUS XM has raised Liberty Media’s stake to 49.77%, excluding 7% Exchangeable Notes of SIRIUS XM, which if converted into common shares may increase Liberty Media’s ownership to 49.82%. Hence, the company’s intention to acquire more than 50% stake apart from taking full control of the Board of SIRIUS XM, remains well within grip.
SIRIUS XM Radio is the largest satellite radio operator in the U.S. However, the company was facing severe financial crunch in 2009, during the peak of the Great Recession. A significant downturn of the auto industry jeopardized SIRIUS XM’s revenue as the company is mostly dependent on the auto sector (automobiles with inbuilt commercial radio network) for its survival.
At that juncture, Liberty Media provided $530 million in loan to SIRIUS XM to avoid bankruptcy. That loan was in lieu of 40% stake of SIRIUS XM given to Liberty Media through preferred shares.
During the last couple of years, SIRIUS XM has successfully turned around its fortunes, with commendable subscriber growth and a service rate hike. We believe the turnaround of SIRIUS XM makes Liberty Media interested in gaining full control.
Earlier, Liberty Media raised its stake in SIRIUS XM to 48.1% through an open market purchase of SIRIUS XM’s shares and now the company is planning to gain full control of the latter, thereby increasing its stake by more than 50 However, the whole exercise depends on the impending FCC nod for Liberty Media to take control of SIRIUS XM.
We maintain our long-term Neutral recommendation on Liberty Media. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.