Liberty Media has made a proposal to make satellite radio provider SiriusXM a wholly owned subsidiary of Liberty.
Under the tax-free transaction, Sirius public shareholders would receive 0.0760 of a new share of Liberty Series C non-voting common stock…
Liberty Media has made a proposal to make satellite radio provider SiriusXM a wholly owned subsidiary of Liberty.
Under the tax-free transaction, Sirius public shareholders would receive 0.0760 of a new share of Liberty Series C non-voting common stock in exchange for each share of Sirius common stock they owned.
The proposed exchange ratio would value Sirius common shares at approximately US$3.68 per share, based on the closing price of Liberty’s Series A shares on 3 January 2014. This represents an implied premium of 3.1% for Sirius’ shareholders.
Immediately prior to such a conversion, Liberty intends to distribute, on a 2:1 basis, shares of Liberty’s Series C common stock to all holders of Liberty’s Series A and B common stock to create a liquid trading market for the new Series C shares.
Upon completion of the proposed transaction, Liberty expects that Sirius’ public shareholders would own approximately 39% of Liberty’s then-outstanding common stock.
Commenting on the plan, Greg Maffei, Liberty’s president and CEO said: “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.
“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 US$27bn market capitalization company.”
The proposed transaction is subject to approval by the Sirius board of directors and it is expected that they will appoint a special committee of independent directors to consider the offer. It is also reliant upon a majority of the company’s public shareholders, who represent a minority 47% of SiriusXM, agreeing to the deal.
Liberty believes that the transaction would not require regulatory approval nor any consent from any lender or other third party.
Liberty has engaged Guggenheim Securities as its financial adviser on the offer with Baker Botts providing legal advice.
Liberty’s long game
If successful, the transaction would mark the final act in a takeover plan that has been almost five years in the making.
Liberty was initially SiriusXM’s white knight. The satellite radio provider was in a parlous state in early 2009, loss-making and on the verge of defaulting on its debt. Liberty provided a much needed US$530m capital infusion in return for preferred stock convertible into a 40% holding.
That investment agreement included a 3 year standstill period but once that expired Liberty moved swiftly to increase its stake in a company that had subsequently turned profitable and was generating a significant amount of cash.
In January 2013, the FCC gave its approval to Liberty taking de jure control of SiriusXM. And the media giant moved swiftly to become the majority shareholder, converting all of its Series B-1 preferred stock and purchasing an additional 50 million shares of common stock.
It has since upped its stake to almost 53% while it has become increasingly influential on the Sirius board, a move that ultimately leading to the departure of CEO Mel Karmazin, the man behind the 2008 merger of Sirius and XM.
In a conference call to analysts, Maffei explained the benefits of the takeover to Liberty: “Why are we doing this? What’s our rationale? First is we want to simplify our capital structure and have a parent-only structure, eliminate some ambiguity around our long-term relationship between Sirius and Liberty.
“We also think it increases our financial and strategic flexibility. It optimizes our capital structure. It allows the Sirius shareholders to benefit from capital deployment and organic and strategic investments and return of capital across the whole Liberty portfolio. We believe it will enhance Liberty’s access to capital to support the pursuit of other potential attractive investment opportunities.”
