Sirius XM Holdings Inc (SIRI)

[LonJandis]

Liberty Media Moves For Full Control Of SiriusXM

http://seekingalpha.com/article/629241-liberty-media-moves-for-full-control-of-siriusxm?source=email_rt_article_readmore&ifp=0

Today, May 31st, Liberty Media (LMCA) filed with the FCC a petition for reconsideration of its applications to transfer de facto control of the SiriusXM (SIRI) licenses. The original application had been dismissed on May 4th. In an article last week titled Sirius XM: Is 46.2% The New 50 Percent? it was noted that part of the reason for the FCC dismissal was the lack of a demonstration of an intent by Liberty Media to move for de jure control of SiriusXM. Specifically, the FCC wrote:

Furthermore, we conclude that a waiver of basic filing requirements is not warranted, as the facts disclosed in the referenced applications are not sufficient to establish that Liberty Media intends to take actions, such as conversion of preferred to common stock and installation of a board majority, that would constitute exercise of de facto or de jure control.

In the summary of that article it was suggested that Liberty Media had taken steps to increase its ownership and could convert up to half its preferred shares to demonstrate their intent to take control:

Its forward contract and open market purchase can be used to demonstrate that Liberty is taking steps to take de jure control. Converting half its preferred shares (allowing it to maintain rights) would make their case even stronger. It will be interesting to see how the FCC rules.

According to its 13D filing, these are precisely the justifications Liberty Media is using to demonstrate intent. But Liberty goes even further, detailing how they plan to take control should the FCC approve their request for de facto control. In the 13D filing Liberty Media states "among other things, that it intends to assert control over the Issuer [SiriusXM] upon receiving FCC approval." Liberty Media also describes the steps it will take to gain control:

Convert almost one-half of the shares of its preferred shares to common stock bringing its total (including the open market purchases and its forward contract) common stock percentage to more than 32%
As soon as practicable put up its own slate of directors so that they would constitute a majority of the SiriusXM board
Vote all of the Liberty Media's shares of common stock in favor of its slate
Solicit proxies from other shareholders to support the election of the Liberty Media nominees.
Liberty Media also stated that it "intends to continue purchasing shares of Common Stock in the open market, depending upon price and other market conditions" and that it "may purchase sufficient additional shares of Common Stock that would enable it to replace the entire Board of Directors by unilateral action."

Liberty Media also left itself the option to change its plans. The 13D notes that Liberty Media would "continuously review its investment in" SiriusXM. In other words, it could buy more shares, or sell its shares, depending on market conditions, government regulations, business conditions, etc.

Summary

Those SiriusXM investors that were wondering what Liberty Media would be doing next have their answer. Liberty Media intends to take control of SiriusXM and is looking to get the necessary approval from the FCC.

The FCC rejected the initial request because Liberty Media had not shown an intent to take control, and as a result did not waive the electronic filing requirement. Now that the intent issue has been addressed, the FCC will need to decide whether Liberty Media should be granted de facto control and whether it would be a suitable licensee.

And the SiriusXM investor will need to decide if Liberty Media taking control is good for the company and their stock.

Disclosure: I am long SIRI. I have $3 January 2013 covered calls against most of my Sirius position, as well as some $2 and $2.50 January 2013 covered calls. I may initiate (or close) a buy stock/sell option position in Sirius, discussed in another article, at any time. I have no positions, or any plans to open positions in the next 72 hours, in Liberty Media.