The decision comes nearly five years after Liberty Media -- chaired byJohn Malone -- took a 40% stake in SiriusXM through a lifesaving $530 million capital infusion into the satellite radio leader. Over subsequent years, Liberty Media has increased its holding in SiriusXM as the company rebounded from the verge of bankruptcy, became profitable and generated positive cash flows. Nearly a year ago, Liberty Media built its stock ownership of SiriusXM to a controlling interest.
Now the media giant is seeking to consolidate the SiriusXM into its own finances as a wholly owned subsidiary.
The company said in a Friday press release that it would seek to convert public shares of SiriusXM into Liberty Media shares. Were a deal to be done on the terms that Liberty Media announced on Friday, current SiriusXM shareholders would own approximately 39% of Liberty Media's outstanding stock. The combined company would have a stock market capitalization of $27 billion, Liberty Media said.
Friday's deal values SiriusXM shares at $3.68 apiece, according to a press release, a modest premium to Thursday closing share prices.
"Our proposal will allow Sirius public shareholders to convert from a non-controlling stake in a subsidiary into a direct equity position in Liberty, the parent company," Greg Maffei, Liberty Media's CEO, said in a statement.
"Sirius shareholders will continue to participate in Sirius' future prospects along with Liberty's broader portfolio of businesses and opportunities. We believe the combined company will have better access to capital and all of Liberty's shareholders - both its current shareholders and the Sirius shareholders who become Liberty shareholders as a result of the proposed transaction - will enjoy enhanced liquidity as shareholders of a $27 billion market capitalization company," Maffei added.
Friday's deal would seek to convert SiriusXM shares into Liberty Media shares on a tax-free basis.
In recent years, SiriusXM has been among the media industry's strongest performers as a recovering new and used car market bolstered sales of the firm's satellite radio subscriptions. Those rising sales have translated to strong cash flows, which many had expected could allow SiriusXM eventually to pay large dividends to its shareholders, predominately Liberty Media. In 2012, the company paid a 5 cent special dividend to shareholders and unveiled a $2 billion share buyback authorization to reduce its much diluted share count.
Liberty Media rejected analyst assertions that consolidating SiriusXM would curb the firm's share repurchase activity. Instead of SiriusXM buying back shares, the commentary indicated Liberty would simply pick up such activity. "The Sirius buyback program becomes the Liberty buyback program," the company said on a call with analysts.
With Liberty's stock deal on the table for SiriusXM minority shareholders, the satellite radio giant will need to form a special committee to evaluate the $3.68 a share consolidation proposal. Liberty also indicated they would be flexible to negotiation once the special committee forms an opinion on their offer.
An acquisition of SiriusXM and the subsequent boost of Liberty Media's market capitalization to $27 billion could also aid the company in pushing a joint bid with Charter Communications (CHTR) in buying Time Warner Cable (TWC). Liberty Media characterized Friday's proposal as a means to give the company added financial and strategic flexibility. Liberty Media openly fielded questions about Charter Communications and Time Warner Cable in their call announcing their SiriusXM proposal.
On Friday, Evercore Partners upgraded SiriusXM shares to "outperform," with a $4.50 price target, citing the company's efforts to profit from a growing marketplace for wireless connectivity within automobiles.
-- Written by Antoine Gara in New York