Liberty plans move for whole of Sirius XM
John Malone’s Liberty Media, which has been strengthening its hold over Sirius XM since the depths of the financial crisis, on Friday proposed to make the satellite radio broadcaster a wholly owned subsidiary, in a deal that could give it more firepower in its push to consolidate the US cable industry. Liberty Media owns about 53 per cent of Sirius as part of its portfolio of media, communications and entertainment businesses. It is pitching the transaction to Sirius shareholders as a way to convert a non-controlling stake in a subsidiary into an equity position in a more liquid parent company. The tax-free transaction values Sirius at about $3.68 per share, or a 3.1 per cent premium on the $3.57 closing share price on Friday. Sirius had an equity value of about $21.5bn on Friday. If approved, the deal would convert each share of Sirius common stock into 0.0760 of a new share of Liberty’s Series C common stock. Liberty said Sirius public shareholders would ultimately own about 39 per cent of Liberty’s outstanding common stock. Greg Maffei, Liberty’s chief executive, told a conference call on Friday that the proposal was intended to simplify the two companies’ capital structures and eliminate the ambiguity of their long-term relationship. It would enhance Liberty’s access to capital "to support the pursuit of other potential attractive investment opportunities", he added. "All it does is move the Sirius XM shareholders in the position of a non-controlling economic stake at the sub level to a similar non-controlling economic position in new Liberty at the parent," he said. For the first nine months of 2013, Sirius reported that free cash flow increased 42 per cent to $624m from the same period in the previous year. The move comes after Liberty spun off its Starz entertainment company and continues to push for consolidation of the fragmented US cable business. In May, Liberty paid $4.6bn for 27 per cent of Charter Communications. Since then, Liberty and Charter have circled rival cable operator Time Warner Cable. However, Mr Maffei dodged questions on whether the new source of cash would be used to pursue Liberty’s ambitions to consolidate the cable market. Charter, which has an enterprise value of about $28bn, would require substantial funding to snap up the larger Time Warner Cable, which has an enterprise value of about $61bn. In 2009, Sirius accepted a $530m rescue package from Liberty, saving the company from a bankruptcy filing or a forced deal with Charlie Ergen, chief executive of Dish, the US satellite broadcaster. In exchange, Liberty acquired preferred shares in Sirius along with seats on its board. As Sirius’s business rebounded, Liberty increased its stake and petitioned US regulators until it acquired a controlling stake in January 2013. The following month, Mel Karmazin left his post as chief executive of Sirius, after signalling his reluctance to work for a controlling shareholder. Sirius said on Friday that a special committee of independent directors would consider the proposal. Mr Maffei said Liberty saw no significant regulatory hurdles given that it already had a controlling stake.