Liberty Launches Assault on Sirius XM Shareholders

By Richard Saintvilus - September 19, 2012 | Tickers: LMCA, SIRI | 0 Comments

Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

Satellite radio Sirius XM (NASDAQ: SIRI) is on a short list of the most polarizing stocks on the market, as it has developed somewhat of a love-hate relationship with investors and analysts. Remarkably, even from its supporters or doubters, it remains one of the most misunderstood companies on Wall Street.

As a longtime subscriber of the service, I can tell you that there is a considerable amount of value in what Sirius offers. However, as an investor, trying to find the value in the stock is a tricky proposition particularly now, as it is under attack from many angles by Liberty Media (NASDAQ: LMCA). But things have gotten a little bit nastier, and it is investors that stand to lose.

Since hitting an intra-day low of $1.80 on June 25, there has not been many stocks that have performed better than Sirius. If you factor in its recent high of $2.64, the stock has appreciated almost 50% over the past 3 months. Except now we know why: Liberty has been on a buying spree as it aimed to take control of the company.

That, along with what I would consider a significant amount of short covering, has propelled the stock to heights that it has not seen since it pre-merger days. But it now appears that Sirius is poised to give up these gains. And Liberty has every intention of facilitating the fall.

Liberty once said that it would not convert its preferred shares of Sirius to common stock. However, we learned recently that it in fact converted 50% of these shares. While I dont want to be nave and suggest that somehow, "Libertys hand was forced," it likely didnt anticipate that Sirius would be playing so hard to get, either. This has been a part of Libertys plan and a card that it was prepared to play at the right opportunity. In a recent SEC filing, the company said as a result of the conversion, its stake in the Sirius has risen to 49.5%, while also owning roughly 32% of common shares. So what does this all mean?

What it means is that any further delay in this dance between the two companies is nothing more than postponing the inevitable. Sirius is now at the mercy of Liberty and what it wants to do - its all just a matter of time. Whats more the impact of Libertys conversion has caused a considerable amount of confusion with Sirius financial metrics. One day we woke up to Sirius having a P/E of 4; then, upon the conversion, various sources listed the P/E at 32. Not that Sirius has ever traded on fundamentals, but to the extent that investors might consider such factors within their investment/trading decisions, it becomes pretty significant.

So how much is Sirius really worth? What is its market cap? How much does it now earn per share? Will this force analysts to revise or restate projections. It is hard to answer these important questions after Liberty has essentially flooded the market with 1 billion extra shares essentially causing massive dilution. While Liberty has recently helped many investors by buying shares of Sirius on the open market, it has now announced that its holiday shopping season is ending early and now its time to return unwanted gifs.

For many investors, the logic has always been, if Liberty wants Sirius so bad, then they are going to have to pay a premium for it. I can only ask, really? Im curious to see if investors now still feel that same way. Liberty is operating by its own set of rules and its own timetable. That Liberty is also an investor in Sirius does not mean that it cares about the stock appreciating in value more than the other benefits Sirius offers such as its $8 billion in NOLs as well as assets that Liberty is able to leverage for gains in other areas of its holdings.

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Liberty Launches Assault on Sirius XM Shareholders