NEW YORK (TheStreet) -- One of my favorite quotes of all time comes from Sir Patrick Henry, who during a speech in 1775 said "Give me liberty or give me death." He said this in protest to what he felt was suppression or oppression of his beloved statesmen, and if Henry were a Wall Street analyst today, I suppose one can say he would be bullish on Liberty. I wonder how he would feel about the war being fought through the press between Liberty Media (LMCA) and Sirius XM (SIRI - Get Report)?

The good news for Sirius investors is that they won't need to choose death; it looks as if they are about to get a whole lot of Liberty. But Liberty is only going to further suppress the advancement of shareholders.

Wall Street has a funny way of telling you what is about to happen just before it does. (Remarkably, investors always find a way to miss these tell-tell signs.) One such event occurred two weeks ago when 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 buy 302 million shares of Sirius XM at a forward price of $2.15 per share, or $650 million. So not only did Liberty imply what it thought was a "fair" premium for a stock that many thought deserved to be at $3, but recent evidence suggests that even $2 might now be considered expensive.

Since then, Liberty has raised its stake to just over 46% after having bought more than 60 million shares on the open market at average prices of $2.13 on the heels of filing for de facto control with the FCC. (Upon the initial denial by the FCC due to "technicalities" the company has re-applied.) It seems Liberty now understands it needs to play hardball to get what it wants, which may require buying more shares to arrive at 50% ownership (plus one) to control the board. Now the company has the following options at its disposal -- none of which benefits current shareholders.
  • Convert almost one-half of the shares of B-1 preferred stock, which, together with the shares of common stock owned or acquired by the reporting person will constitute more than 32% of the total outstanding shares of common stock.
  • As soon as practicable, nominate for election people to serve on the issuer's board of directors such that, if elected, persons nominated by the reporting person will constitute a majority of such directors.
  • Vote all of the reporting person's shares of common stock in favor of such nominees.
  • Solicit proxies from other shareholders of the issuer in support of the election of such nominees.

If Liberty were to convert 50% of its preferred shares to common, though it will reduce its current ownership stake by a few percentage points, it will also allow its John Malone to nominate his chosen candidates to the company's board while at the same time diluting existing shareholders by increasing the float. The popular notion is that upon doing this, it will then enact a split-off via what is called a Reverse Morris Trust to redistribute shares to its current shareholders tax free. But why would Liberty's existing shareholders want to hold Sirius XM stock, as it has no value? The most likely scenario is that as soon as its investors get the split-off shares, they will immediately turn around and sell them for the cash -- sending the shares down even further.

I don't see how anyone cannot applaud Liberty for what it has been able to do. If the title of "the smartest men in the room" is ever deserved, it should go to the leaders at Liberty. They have played this situation as well as it can be played. Not only has Liberty shown it is unwilling to pay the premium investors think the stock deserves; it has timed its recent moves during periods where weak hands are known to bail -- hence "sell in May." From that standpoint, it seems everyone else has already started exiting their positions. Essentially, astute investors are beginning to listen to what the market is saying, while those who are caught "wanting to be right" go down with the ship.

Bottom Line
Current Sirius shareholders are really in a tough situation in deciding what to do with their positions, but I don't see a scenario in which the small guy wins in this situation. In a few weeks many will look at the stock price -- now around $1.90 -- and kick themselves for not getting out when they could have, just as they are now wishing they would have gotten out at $2 or $2.15. In the meantime, Liberty continues to capitalize on this great timing by benefiting from a bearish market, insider sales and feeble resolve of shareholders, some of whom are simply unable to withstand further disappointment.

The smart thing to do here would be to sell the stock before it succumbs to more bearish pressure in a market poised to punish anything with questionable fundamentals. For that matter, it seems $1.65 is likely the next target.

I keep looking back, though, and seeing how investors once considered Liberty such a great partner and a catalyst for Sirius to head to $3 -- many even suggested Liberty was not going to "take their shares to less than $2.50." All the while Liberty has been saying silently, "We'll see about that." In light of these events, I wonder if Sir Patrick Henry would have remained bullish on Liberty. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.