John Malone‘s company proposes a stock swap that would value Sirius XM at $3.68 a share — a mere 3% premium over Friday’s closing price of $3.57. Liberty Media already owns more than 52% of the satellite radio company’s shares, so this wouldn’t change control, and it says that it won’t squeeze out other investors. It will only go ahead if a special committee of independent directors, and other shareholders, support the change. They likely would insist on a higher price. The goal is to “simplify the capital structure and pursue other economic opportunities,” Liberty CEO Greg Maffei says. The company also says that Sirius XM shareholders will benefit by ending up with 39% of Liberty, though their shares would not entitle them to vote on its affairs.
“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 says. Malone adds that a deal “will enable us to focus our energies on the pursuit of new opportunities across the expanded portfolio of Liberty’s businesses.” Everything that Malone does has to be seen in the context of his eagerness to help Charter Communications (where Liberty’s the biggest shareholder) buy Time Warner Cable. “There are lots of ways that something can occur there,” Maffei says. “It’s likely that (a potential deal for TWC) would close significantly later than the transaction contemplated here.”
Here’s Liberty’s announcement:
ENGLEWOOD, Colo.– Liberty Media Corporation (“Liberty”) (Nasdaq: LMCA, LMCB) announced today that it has made a proposal to Sirius XM Holdings Inc. (Nasdaq: SIRI) (“Sirius”) that outlines the terms by which Sirius public shareholders would become shareholders of Liberty in a tax-free transaction in which each share of Sirius common stock would be converted into 0.0760 of a new share of Liberty Series C common stock, and, immediately prior to such conversion, Liberty intends to distribute, on a 2:1 basis, shares of Liberty’s Series C common stock to all holders of record of Liberty’s Series A and B common stock to create a liquid trading market for Liberty’s Series C common stock. (The foregoing exchange ratio would be equivalent to a 0.0253 exchange ratio prior to the distribution of the Liberty Series C common stock dividend.) Upon the completion of the proposed transaction, Liberty expects that Sirius’ public shareholders would own approximately 39% of Liberty’s then-outstanding common stock.
“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,” said Greg Maffei, Liberty’s President & CEO. “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.”
“The proposed transaction is an important step in the growth of both companies,” said John Malone, Liberty’s Chairman. “It will enable us to focus our energies on the pursuit of new opportunities across the expanded portfolio of Liberty’s businesses and to optimize our capital structure to produce the maximum possible returns to all shareholders.”
The Series C common stock would be Liberty’s largest and most liquid series of stock. The proposed exchange ratio of 0.0760 would value Sirius common shares at approximately $3.68 per share based on closing prices of Liberty’s Series A shares on Friday, January 3, 2014. This exchange ratio represents a 4.5% premium to the exchange ratio implied by the closing prices of Liberty’s Series A and Sirius’ shares on Thursday, January 2, 2014 and a 3.1% premium to the exchange ratio implied by the closing share prices of Friday, January 3, 2014.
As explained in the proposal letter sent to Sirius, which will be filed promptly with the SEC, the proposed transaction would be subject to the negotiation and execution of mutually acceptable definitive transaction documents, the terms of which would be approved by a special committee of independent directors of Sirius, and would also be subject to a majority of the minority vote of the Sirius public shareholders. The approval by the Liberty shareholders of the issuance of the Series C common shares in the proposed transaction would also be required under applicable Nasdaq Stock Market requirements. Other than applicable filings with the Securities and Exchange Commission, Liberty does not anticipate that any additional regulatory approvals would be required.