It’s been suggested by Wall Street financial analysts focused on telecommunications for months and in recent weeks has been the subject of much chatter indicating such a move would happen.
On Tuesday, all of the rumours became reality, as Liberty Media and SiriusXM unveiled details of a transaction they say will make the ownership of the nation’s subscription-based streaming audio and satellite radio service less complex.
As of today, SiriusXM trades on Nasdaq under the “SIRI” ticker symbol and closed on Monday at $5.02 per share.
Liberty Media Corp., in contrast, is an entity that trades on Nasdaq under seven unique ticker symbols. Three comprise the “Liberty SiriusXM tracking stock group.”
For Jeffrey Wlodarczak, the Principal and Entertainment/Interactive Subscription Services Analyst of Pivotal Research Group, discussions of a roll-up have permeated his investor notes for the last several years. In fact, in November 2019 Wlodarczak took a good look at “SIRI,” and put a little logic into the value for investors of buying this issue rather than that of the Liberty SiriusXM Group.
His conclusion four years ago? He couldn’t figure out why anyone would invest in this issue, rather than “SIRI.” At the time, the primary asset of The Liberty SiriusXM Group was Sirius XM Holdings, with a 71.5% stake in “SIRI.” As such, the obvious buy was SiriusXM Holdings, with prices some 5 1/2-times cheaper than that of LSXMA.
Now, that “discount” smaller, with LSXMA trading in the $26 range. Still, a merger of the trading stocks appears beneficial. As such, a move forward is commencing.
Definitive agreements have been signed where LSXMA, LSXMB, and LSXMK will be combined with SiriusXM.
This will create a “New SiriusXM” with respect to Nasdaq and the SEC. But, there will be no other noticeable differences, with SiriusXM continuing to trade as “SIRI.” There will be no business name change in any way.
“We have reached an important milestone in Liberty’s ownership of SiriusXM. This combination will create value for all stockholders by eliminating the tracking stock structure, enhancing liquidity and allowing former LSXM stockholders to participate directly in the ongoing performance of SiriusXM,” said Liberty President/CEO Greg Maffei, who is expected to serve as Chairman of the Board of the new SiriusXM. “SiriusXM commands the largest paid share-of-ear in the car and has proven itself as an incredibly successful and profitable business. We are confident SiriusXM will continue to create value by building on its resilient business model to execute its strategic initiatives. We look forward to remaining meaningfully involved in the business and significant stockholders.”
For SiriusXM CEO Jennifer Witz (pictured, top left), she was pleased that the Board of Directors’ Special Committee reached the agreement, which she says allows SiriusXM “to enter its next phase of value creation. In a highly fragmented audio entertainment industry, SiriusXM has differentiated itself as the leading audio entertainment provider by creating an experience centered on our high-quality, premium, human curated radio that is more relevant than ever. In doing so, we have built a profitable business that is poised for continued success. With our strong foundation and as we roll out our next generation platform, we are transforming SiriusXM to drive long-term growth and stockholder value creation.”
The transaction is expected to be completed early in the third quarter of 2024, subject to approval by a majority of the aggregate voting power of the shares of Liberty SiriusXM common stock present, whether in-person or by proxy, at a stockholder meeting, the receipt by Liberty Media and New SiriusXM of tax opinions from their respective tax counsel, as well as the receipt of required regulatory approvals and the satisfaction of other customary closing conditions.
Certain trusts affiliated with John Malone, the Chairman of Liberty Media, have entered into a voting agreement pursuant to which they have committed to vote their shares of LSXM in favor of the transaction. A subsidiary of Liberty Media owning a majority of the outstanding shares of SiriusXM has delivered a written consent approving the transaction on behalf of SiriusXM stockholders.
The transaction will not result in any changes to the Liberty Formula One tracking stock group or the Liberty Live tracking stock group.
HOW THE TRANSACTION WILL TRANSPIRE
Under the terms of the transaction, Liberty will separate LSXM by means of a redemptive split-off of a new subsidiary of Liberty (“SplitCo”), which will hold its shares of SiriusXM and approximately $1.7 billion of estimated attributed net liabilities. Such net liabilities include LSXM’s net debt (3.75% LSXMA convertible notes due 2028, 2.75% SIRI exchangeable bonds due 2049 and SIRI margin loan, net of corporate cash), as well as other liabilities for transaction fees and expenses, financing fees, litigation related liabilities and other corporate adjustments. In the split-off, holders of each series of LSXM common stock will receive a number of shares of SplitCo stock equal to the Exchange Ratio, calculated as described below, such that LSXM stockholders receive 1 share of New SiriusXM for each share of SiriusXM previously held at LSXM, adjusted for LSXM net liabilities. A wholly owned subsidiary of SplitCo will then merge with SiriusXM, and existing SiriusXM stockholders (other than Liberty Media) will receive 1:1 shares of SplitCo, which will become New SiriusXM. The transaction is intended to be tax-free to LSXM stockholders (except with respect to any cash received in lieu of fractional shares) and SiriusXM stockholders.
The Exchange Ratio will be calculated based on the number of shares of SiriusXM held by Liberty, reduced by a net liabilities share adjustment divided by the number of adjusted fully diluted shares of LSXM.
Liberty Media currently holds 3,205.8 million shares of SiriusXM attributed to LSXM. The Net Liabilities Share Adjustment to the Exchange Ratio will be determined as the amount of assumed LSXM net debt (excluding the 3.75% LSXMA convertible notes due 2028), with additional adjustments for transaction fees and expenses, financing fees, litigation related liabilities and other corporate adjustments, divided by the SiriusXM share price of $4.23, which represents the average of the SiriusXM daily volume-weighted average prices over the 20 consecutive trading days ending September 25, 2023, the day before Liberty filed a 13D relating to a transaction.
The adjusted fully diluted shares of LSXM will be calculated based on outstanding LSXM shares at closing, including the dilutive impact of shares underlying the 3.75% LSXMA convertible notes due 2028 and the dilutive impact of equity awards.
If the Net Liabilities Share Adjustment and the adjusted fully diluted shares of LSXM were calculated as of June 30, 2024, the Exchange Ratio is estimated to be approximately 8.4 shares in New SiriusXM for each share of LSXM held.
Pro forma for the transaction, and assuming the adjustment described above, at June 30, 2024, there will be approximately 3,392 million basic shares outstanding of New SiriusXM, of which former LSXM stockholders will own approximately 81% of New SiriusXM, with the SiriusXM minority stockholders owning the remaining 19%.
New SiriusXM will remain committed to the business’ long-term target leverage ratio of low-to-mid 3x adjusted EBITDA.
SiriusXM has secured committed financing with availability of $1.1 billion from Morgan Stanley, Bank of America and J.P. Morgan, the net proceeds of which may be used to refinance Liberty Media’s 2.75% Exchangeable Notes due 2049 and the existing Liberty Media margin loan secured by SiriusXM’s common stock.
Advisors
J.P. Morgan is acting as financial advisor to Liberty Media, and O’Melveny & Myers LLP is acting as legal counsel. Morgan Stanley & Co. LLC is acting as financial advisor to SiriusXM, and Simpson Thacher & Bartlett LLP is acting as legal counsel. Solomon Partners is acting as financial advisor to the SiriusXM Special Committee and Debevoise & Plimpton LLP is acting as legal counsel.
