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Liberty Media Is Exploiting SIRI Investors' Delusion

Stocks in this article: SIRI LMCA

NEW YORK ( TheStreet) -- For reasons I can't quite comprehend Sirius XM (SIRI - Get Report) investors continue with their misguided optimism over recent events with Liberty Media (LMCA - Get Report). They seem to think Liberty's effort to take full control of Sirius is going to somehow manifest into a win-win situation where both Liberty and investors of Sirius walk away holding hands.

I can't help but think how this is an example of the perverse investor characteristic that likes to make easy things difficult.

Sirius XM investors need to understand that Liberty Media is not working for their best interest, nor should they. Last week, Liberty said it had entered into a forward-purchase contract giving it the right to increase its stake in Sirius XM to 45.2%. The contract allows Liberty to purchase 302 million shares of Sirius XM at a forward price of $2.15 per share or $650 million.

Instead of looking at this news objectively, many were quick to apply lipstick to this disappointment by suggesting that Liberty had somehow established a floor for the stock at a price of $2.15.

Remarkably, this failed logic continued to be asserted as the stock plummeted to $2.07. The obvious question should be, how can a "floor" have been supposedly established 8 points above where the stock was currently trading? Nobody bothered to ask.

Essentially, Liberty is saying it is not willing to pay more than $2.15 for the stock. If that's the case, why should anyone else?

I think the answer to this question will become very apparent in the coming days and weeks. My suspicions tell me one clue will be more insider sales -- specifically from CEO Mel Karmazin, who I'm expecting to sell more of his 49 million options at some point this week.

Interestingly, as the table shows above, on the same day that information surfaced regarding Liberty's contract for 302 million shares, the company bought 16 million shares of Sirius on the open market at a price of $2.13 -- while the very next day, it added over 44 million more at a price of $2.12. So not only is the company systematically increasing its position for control of the company, but it is shrewd enough to do so without disrupting the market.

Disappointingly for investors, this tactful strategy also dampens hopes for an early retirement.

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