This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Auto Sales to Drive SiriusXM Past Liberty Media M&A Chatter (Update 1)

(SiriusXM story updated to reflect additional analyst comments and earnings estimates)

NEW YORK ( TheStreet) -- Three years after catching the market bottom with a 40% stake in SiriusXM (SIRI - Get Report), Liberty Media (LMCA) chairman John Malone would likely concede that the easy money has been made on the satellite radio giant.

Investors who've watched SiriusXM gain roughly 1,500% since a March 2009 bottom would be wise to have the same perspective, as speculation of a Liberty Media buyout has driven Sirius shares to a near 30% gain in 2012. In fact, long-term SiriusXM investors may benefit more from keeping an eye on auto sales as a source of subscriber growth while tuning out what could be an uncertain and complicated prospective buyout by Liberty Media.

In March 2009, Liberty Media took a 40% stake in SiriusXM after providing the company with $530 million in bankruptcy-averting financing. The "bailout" paved the way for a Sirius share recovery from 14 cents a share to $2.35. A standstill agreement that prevented Liberty Media from increasing its SiriusXM stake expired after three years, and on March 20, a petition to the Federal Communications Commission paved the way for Liberty Media to build a controlling stake in the satellite radio company.

Deal speculation centers on whether Liberty Media will look to buy SiriusXM through a merger and tax-free spinoff transaction called a Reverse Morris Trust, or through a direct acquisition to take advantage of billions of net operating losses [NOLs]. However, the petition and a subsequent request by SiriusXM to block the prospective stake increase revived speculation of a takeover by the highly acquisitive Liberty Media, and portrayed two companies at odds over the M&A end game.

In February, anticipating the end to Liberty Media's lockup, Citigroup analyst Jason Bazinet made the argument that M&A could drive SiriusXM's stock in 2012, justifying a "buy" rating and $2.50 price target. However, Bazinet's expectations for a deal have changed slightly as a result of Liberty Media and SiriusXM's recent FCC petitions. Now a merger and tax-free spinoff seems remote because of the hostile relationship between the two companies and, instead, Bazinet sees Liberty Media bidding for a controlling stake.

"[The] lack of Sirius cooperation suggests Sirius management is doing its best to ensure its shareholders receive a control premium from Liberty," adds Bazinet in a Monday note.

Analysts covering Liberty Media highlight a SiriusXM stake increase as a likely pre-cursor to a takeout. "We continue to believe Liberty inevitably increases its stake in SIRI above 50% prior to an inevitable merger," wrote Jeffrey Wlodarczak of Pivotal Research in a February note, citing $9 billion that the company can use for share buybacks or acquisitions like Sirius and LiveNation.

"In the valuation of SiriusXM's stock what is priced in is a full majority stake by Liberty Media," says Martin Pyykkonen, an analyst with Wedge Partners, adding this makes SiriusXM shares a risky proposition at current prices, especially since Liberty Media isn't compelled to cut a deal anytime soon. Nevertheless, he expects SiriusXM's earnings and a lack of direct competitive threats from Pandora Media (P) and Spotify to eventually justify current share prices.

After SiriusXM lost a record $5.3 billion in 2008, the company turned to a small profit in 2010, which grew to $427 million in 2011. The company is expected to see its profit grow to $543 million in 2012 on a near 25% jump in revenue to $3.4 billion, according to consensus analyst estimates polled by Bloomberg.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
LMCA $18.78 0.16%
SIRI $3.95 -0.50%
AAPL $95.18 1.64%
FB $117.43 -0.96%
GOOG $692.36 -0.84%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs