Liberty Media Corp. dropped its proposal to acquire the rest of Sirius XM Holdings Inc. The company announced the withdrawn offer along with a plan to create two new tracking stocks. Liberty, which currently owns about 53% of Sirius, said Thursday in light of the tracking stock distribution, “our offer for SiriusXM is no longer applicable.”
Liberty says its board has authorized management to pursue a plan to reclassify its common stock to create two new tracking stock groups, one to be designated the Liberty Media Group and the other to be designated the Liberty Broadband Group, and to distribute subscription rights related to the Liberty Broadband Group.
In connection with the creation of the new tracking stock groups, record holders of Liberty’s Series A and Series B common stock would receive one share of the corresponding series of Liberty Media tracking stock and four shares of the corresponding series of Liberty Broadband tracking stock for each share of Liberty’s common stock held by them as of the effective date. In addition, stockholders will also receive a subscription right to acquire one additional series A or series B share of Liberty Broadband tracking stock for every five shares of series A or five shares of series B Liberty Broadband tracking stock they receive in the Distribution.
Liberty intends to attribute to the Liberty Broadband Group its interest in Charter Communications, its interest in Time Warner Cable and its subsidiary TruePosition, Inc. along with a note obligation from the Liberty Broadband Group to the Liberty Media Group, a call option liability associated with Liberty’s Time Warner Cable Inc. shares and liabilities at TruePosition, Inc. In addition, cash raised from the exercise of Liberty Broadband subscription rights will be attributed to the Liberty Broadband Group. The Liberty Media Group would have attributed to it all of the businesses, assets and liabilities of Liberty other than those specifically attributed to the Liberty Broadband Group, including Liberty’s subsidiary Sirius XM.
“We are creating two new tracking stocks, Liberty Media and Liberty Broadband,” said Greg Maffei, Liberty President & CEO. “This is another step in Liberty’s process of offering investors greater choice, transparency and focus. We expect to complete the creation of the new tracking stocks by the third quarter. In light of the tracking stock distribution, our offer for SiriusXM is no longer applicable. Depending on market conditions, we look forward to further discussions with the SiriusXM Special Committee. We remain enthusiastic owners of 53% of SiriusXM.”
Liberty expects that the Series A and Series B Liberty Broadband tracking stock will trade under the symbols “LBRDA” and “LBRDB,” respectively, and that the Series A and Series B Liberty Media tracking stock will trade under the symbols “LMCA” and “LMCB,” respectively, which are currently used by Liberty’s Series A and Series B common stock, in each case, on the Nasdaq.
Liberty also announced that it plans to sell, pursuant to the terms of the Share Repurchase Agreement, dated as of October 9, 2013, between Liberty and SiriusXM, the SiriusXM shares remaining to be sold under that agreement.
Sirius in early January offered to convert Sirius’s common stock into new Liberty Series C nonvoting shares at a proposed exchange ratio that would value Sirius common stock at about $3.68 a share.
Taking full ownership, Liberty explained at the time, was intended to “eliminate ambiguity” in the long-term relationship between the companies. The move also would have given Liberty access to a new source of capital as it pursued a big cable merger. The assets attributed to Liberty Media will include Sirius, noted a Wall Street Journal story.
On 1/3 Liberty told investors that it wants to buy the roughly 48% of Sirius XM Radio that it doesn’t own. Liberty made a proposal to Sirius XM Holdings Inc. that outlines the terms by which Sirius public shareholders would become shareholders of Liberty in a tax-free transaction in which each share of Sirius common stock would be converted into 0.0760 of a new share of Liberty Series C common stock, and, immediately prior to such conversion, Liberty intended to distribute, on a 2:1 basis, shares of Liberty’s Series C common stock to all holders of record of Liberty’s Series A and B common stock to create a liquid trading market for Liberty’s Series C common stock.
Upon the completion of the proposed transaction, Liberty expects that Sirius’ public shareholders would own approximately 39% of Liberty’s then-outstanding common stock.
RBR-TVBR observation: We were pretty convinced that after the Comcast-Time Warner Cable announcement, Charter would focus its John Malone-fueled sights on Cox Communications. Acquiring all of SIRI would have given it more access to capital to do so. Perhaps Liberty is looking to use that capital against a Cox buy directly instead, perhaps the idea of acquiring Cox has cooled altogether, or perhaps Liberty sees the “plateau” that might be happening at SIRI and isn’t as excited about the company’s future. As we recently noted: While revenues keep going up at SIRI, costs and expenses keep improving and with a record Q4, it seems like a no-brainer for many to upgrade the stock just based on performance—and the fact that SIRI is a monopoly in the space. But what some analysts look at is the coming plateau. SIRI is now in about as many car models as it will ever be; Liberty Media acquired controlling interest in SIRI well over a year ago and there still seems to be no new announcements or developments that would indicate investment via a new service or technology offering. Some say Liberty will just spin the company off as it did with Starz and other companies after riding the wave of profitability.
Lastly, on plateauing, Seeking Alpha recently noted that a comparison with the Q3 2014 metrics shows that the company actually lost subscribers during Q4 2013. SIRI reported that it ended 2013 with 25.56 million subscribers. “At the end of September 2013, Sirius XM had 25.58 million subscribers…The sudden loss of customers, however small, comes as a surprise for a firm that has been adding between 0.4 and 0.6 million net subscribers every quarter for the last couple of years. While the U.S. auto sales continued to surge in the fourth quarter, Sirius XM failed to take advantage of this growth.”
