The SiriusXM Lesson: Thriving Stocks Left for Dead During the Crisis

NEW YORK ( TheStreet) -- Here's an overlooked lesson courtesy of the financial crash and subsequent corporate "handouts": a well telegraphed M&A narrative triggered by a company's need for desperation financing can produce a winning stock bet. No, we aren't talking about Warren Buffett making hay in shares of GE and Goldman Sachs, or even Uncle Sam turning a profit on TARP checks.

As investors prepare for a post-Labor Day final market stretch of 2012, it's worth reflecting on what three of the biggest stock turnaround stories since the worst of the financial crisis -- SiriusXM ( SIRI), Dollar Thrifty Automotive ( DTG) and General Growth Properties ( GGP) -- have in common.

In late August, Hertz's ( HTZ) $2.3 billion acquisition of Dollar Thrifty capped a multi-year takeover battle -- -- at one point during the worst of the financial crisis, Dollar was offered $2 per share in a takeover -- while SiriusXM and General Growth may be multi-billion dollar takeovers that will cement impressive returns from a crisis-time nadir. Following Dollar Thrifty's acquisition, investors are increasingly focusing on similar long-prepared takeovers of SiriusXM and General Growth as a way to lock in economic recovery trade gains.

After each company neared all-time lows around $1 a share during the crisis, M&A speculation has followed a linear progression, also matched by earnings rebounds and balance sheet fixes that fueled share prices, and provided a floor in share values distinct from shareholder M&A hopes.

Market expectations have been on the money about an impending push by John Malone's Liberty Media ( LMCA) to take control of SiriusXM as a driver of the satellite radio giant's stock. Meanwhile, activist investor Bill Ackman, the head of Pershing Square Capital Management, is pushing for a proposed takeover of mall operator General Growth by Simon Property Group ( SPG), in a $20 billion-plus deal that would be one of the largest U.S. acquisitions since the crisis.

In all three cases, following a well telegraphed M&A narrative has been a winning proposition for ordinary investors. Dollar Thrifty shares are up nearly 25% in 2012 on its Hertz takeout, while Sirius and General Growth are up nearly 40% on the year. All three companies are at or near post-crisis highs and many multiples above 2009 lows.

Here's the details on three financial crisis "bailouts" that resulted in big post-crisis gains for shareholders, and where the shares stand now as they come full circle from crisis lows.

Liberty Media tunes into SiriusXM

With SiriusXM, one of the market's most compelling battleground stocks, analysts deserve credit for sticking with their fundamental expectations for the company, and in particular, its dance with large minority shareholder Liberty Media even as shares gyrated in 2012.

As SiriusXM shares fell below $2 in June, well below the consensus analyst estimate, the satellite radio giant looked like yet another prime example of overoptimistic expectations clouded by M&A hype. Noting changes in SiriusXM's relationship with Liberty Media and a recovery in its earnings, balance sheet and cash flow, analysts stuck with optimistic calls for Sirius to rise to $2.50 -- beyond $3, in some instances.

After SiriusXM reported strong user, earnings and cash flow growth in second quarter earnings and Liberty Media subsequently bolstered its stake in the company to 46%, the Wall Street optimism appears vindicated.

Three years after Liberty Media caught the market bottom with a 40% stake in SiriusXM, investors and analysts entered 2012 with the prospect that the easy money had been made on the company. But a detailed look at SiriusXM's earnings and takeout prospects gave many reason to remain optimistic.

Liberty Media gained its SiriusXM stake as a result of a $530 million loan it provided the satellite radio company in 2009. A standstill agreement that prevented Liberty Media from increasing its SiriusXM stake for three years expired in early 2012, paving the way for Liberty Media gain control, which it's almost done with recent stock purchases.

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. As Liberty builds its stake, those expectations seem justified.

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, a SiriusXM FCC petition and subsequent request by SiriusXM to block Liberty share sales portrays the two companies at odds over the M&A end game, with the prospect that hostilities benefit shareholders.

"We see Liberty's purchase of another 2% of SiriusXM, taking its stake to 48%, as raising the probability that it ultimately takes control, appoints a new board, and pushes through a big share repurchase," wrote Lazard Capital Markets analyst Barton Crockett, in an Aug 16 note to clients. "We see the potential of a big repurchase as positive for both Sirius and Liberty, prompting a $0.15 hike in our Sirius price target to $3.00," he adds.

Liberty Media bought 90 million shares of SiriuxSM from Aug. 10 to Aug. 14 at a price of $2.48 and a forward contract for the right to buy 220 million additional shares for $2.05 by October 11, paving the way for the company to have a controlling stake by the fall. That could immediately lead to $7 billion in share repurchases, Crockett of Lazard adds.

"We view reaching a resolution with Liberty as a key future positive development for the stock as it will remove an overhang that has made many investors reluctant to own SIRI," noted Bryan Kraft in a report assessing SiriusXM's earnings earlier in August.

Overall, the company has 3.83 billion shares, meaning that its share price of $2.53 still gives SiriusXM a near-$10 billion market cap.

Where are they now?: While Sirius shares have rallied to a 2012 high, the rally may continue, even if the company's M&A battle drags. "The probability of Liberty Media executing a spin-merge of its SIRI stake during the next 12-18 months is low," writes Kraft of Evercore in an Aug 20 research note. That comes as SiriusXM's earnings momentum looks positive and Liberty Media is still expected to play a big role in a dividend.

Ackman fuels General Growth with Simon Property M&A carrot

A similar dynamic to SiriusXM is playing out in Bill Ackman's balance sheet and real estate recovery bet on General Growth, and a newly launched proposal for shareholders to push for the company's sale to Simon Property. The goal is to sell the mall operator to Simon Property, netting shareholders a premium to what 40%-plus shareholder Brookfield Asset Management would pay for a majority stake.

In August, Ackman said in a letter to General Growth's board that the company should cement its impressive emergence from bankruptcy by selling itself to Simon Property Group, in a deal that could be worth in excess of $26 billion. Ackman owns more than 10% of General Growth's shares, making his fund the company's second-largest shareholder.

A potential deal comes amid a real estate sector M&A drama that's been thickening since General Growth's 2009 bankruptcy and its 2010 re-emergence; however, General Growth shares are far below the $28 share price that Ackman calculates might be reached in a merger.

Simon Property's prospective acquisition of General Growth would thwart a takeover by real estate giant Brookfield Asset Management ( BAM) -- General Growth's top shareholder -- which Ackman argues would come without a control premium, in the letter filed with the Securities and Exchange Commission.

The drama marks what could be a turning point in General Growth's emergence from bankruptcy and an impressive 50% stock surge in the past year, on optimism about a widespread real estate recovery.

In the letter , Pershing is asking that General Growth hire financial advisers to cement a previously discussed merger with Simon Property, as Brookfield tries to take control of the company through ordinary stock purchases and warrant contracts.

Pershing and Brookfield were instrumental in pulling General Growth out of bankruptcy -- recapitalizing the company, raising $2.6 billion from the Fairholme Funds and $500 million from private equity giant Blackstone Group ( BX).

For Pershing, the deal has been a huge windfall. In its letter, Pershing said it's made a near 80-fold return on its investment since the fall of 2008 when it bought into General Growth at an average price of $0.35 per share. Some moves like the 2010 spinoff of Howard Hughes Corp ( HHC) and a general recovery have bolstered the investment.

In 2011, Ackman said he structured a takeover deal for General Growth with David Simon of Simon Property, worth nearly $20 billion. In the deal, General Growth shareholders would receive 0.1765 of a share of Simon stock -- at the time trading at $115 and valuing the company at $21, a 65% premium. Were that exchange offer to remain in a Simon Property merger at present share prices, Ackman calculates that General Growth could be valued at $26.3 billion.

After fending off what were considered opportunistic takeover bids, General Growth had a 2010 initial public offering and sold off assets. Now as shares hover near $20 and Ackman's ready to support a deal with Simon Property, he even says he's willing to sell his stake to Brookfield at over $19 if Simon is blocked from a prospective deal.

And there's a hitch. Brookfield, which is adding to its General Growth stake, isn't supportive of a sale to Simon Property and instead would rather acquire the company itself. In November, Ackman says Brookfield proposed it take General Growth over and sell off assets to Simon Property. Brookfield would finance the deal with proceeds from the sale of 68 General Growth's malls to Simon.

However, in April of this year, Pershing notes Simon Property rejected the deal on pricing concerns. Subsequently, Brookfield began buying up General Growth shares.

Brookfield has gone from owning 29% of the company at emergence from bankruptcy to 42.2% today, notes Pershing in its letter. "It is only a matter of time before Brookfield de facto controls the company," warns Pershing in the letter. " If control of the company is ceded to Brookfield, shareholders will suffer enormous and irreparable harm for they will lose the ability to capture an appropriate control premium for their shares.

Where are they now?: While the prospect of a big premium deal is a new catalyst for General Growth shares, investors are skeptical. Meanwhile, Ackman ended August with a second letter to General Growth's board indicating he could sell his stake to Brookfield at less that $20, effectively giving it control of the company if it doesn't launch a sale process.

For investors, it remains to be seen whether Simon would be willing to pay much in excess of current share prices, signaling there's little reason to expect a big payoff from here.

Dollar Thrifty shareholders ride out the crisis on Hertz deal

For Dollar Thrifty shareholders, a recovery in the auto rental chain's earnings and buoyed expectations of travel spending appear to be all the difference. Those who stuck with the rental firm as it teetered on bankruptcy have also been amply rewarded by Hertz's instance on a deal.

In the fall of 2008, Dollar Thrifty shares fell below $1, only to rebound with the rest of the U.S. auto industry. Bloomberg News reported recently that at the time Hertz offered to buy the company for $2 a share, a bid that was rejected even as the company's shares fell to a March 2009 low below $1.

What's notable about Dollar Thrifty's sale to Hertz are the terms, after a hard-fought, multi-year M&A battle. In October 2011, Hertz pulled a cash and share exchange offer for Dollar Thrifty that valued the industry fourth player at $1.91 billion or $72 a share, on deteriorating market conditions, a negotiating deadlock and scrutiny from antitrust regulators.

Avis, which abandoned a merger proposal with Dollar Thrifty that September amid a bidding war between it and Hertz, confirmed it wasn't interested in Dollar Thrifty earlier in 2012.

Dollar Thrifty shareholders rejected an initial $41 a share takeover offer from in late 2010, but the company returned to the deal table upping its offer in 2011 to $72 a share. However, after a fall in Hertz shares in the fall of 2011, the offer became less economic and in October, Dollar Thrifty took itself selling block and launched a $400 million share buyback program.

Now, Hertz is paying up in cash at a 20% premium to its best previous offer, in a move that signals increased confidence in the prospects of the merger. A year's time helped Hertz prepare for what's likely to be a closely followed set of regulatory approvals by antitrust authorities, in a major consolidation effort.

Meanwhile, by acquiring Dollar Thrifty, Hertz will reshape the auto rental landscape, in a move that could pay off in an improving economy. Even with industry-wide growth in car rentals and a strong used car resale market - a key to companies as they sell old fleets -- the big four in auto rental chains struggled to increase prices in 2011. In first quarter earnings, Hertz, Avis Budget, and Dollar Thrifty all reported falling rental prices.

With Dollar Thrifty, Hertz will bolster its competition with privately-held industry leader Enterprise. According to a 2012 survey by research firm IBISWorld, the four largest car rental companies in the U.S. control roughly 80.5% of the market, with Enterprise holding the largest 38% market share, Hertz second at 18.9%, Avis at 18.5% and Dollar Thrifty a long fourth at 5% of the overall market.

Hertz may look at Dollar Thrifty as a way to stay aggressive after already impressive 2012 share gains and stronger than expected earnings and guidance. It is paying Dollar Thrifty a record $87 price in the deal.

The combination of a premium brand like Hertz and a leisure brand like Dollar Thrifty may be similar to a tie up's like the Avis ( CAR) $1 billion buy of Budget in July 2011 and privately-held Enterprise's 2007 acquisitions of National and Alamo, said Fred Lawrence an analyst with Avondale Partners in February.

Where are they now?: With the merger now poised to close after what may be a lengthy antitrust inquiry, investors may be wise to watch whether Hertz can improve rental car pricing, amid consolidation. Oftentimes a first mover like Hertz can change entire industry pricing dynamics.

Meanwhile, the deal's merits will also hinge on macroeconomic factors like the price of oil, and consumer and business spending.

-- Written by Antoine Gara in New York