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Liberty’s Stake in Sirius Edges Closer to 50%

Since the end of the Labor Day weekend, Liberty Media Corp (NASDAQ:LMCA) has increased its share of Sirius XM Radio (NASDAQ:SIRI) to 49.29%, up from the 49.20% stake it held as of last Friday’s market close.  According to Liberty Media’s Form 4 filings with the SEC, the most recent purchases by John Malone’s company have totaled 5.5 million shares, worth a tick under $2.52 a piece.  The transactions, which were made on Tuesday and Wednesday of this week, bring Liberty slightly closer to surpassing the 50% threshold that would give it control of Sirius and its much-desired airwave licenses.

Sirius XM Radio Inc (NASDAQ:SIRI)

For those of you who’ve missed the drama between these two media giants, it all started in early 2009, when Liberty gained a 40% stake in the radio broadcasting company after its $530 million loan prevented Sirius from going bankrupt.  Interestingly, the bailout’s accompanying agreement stated that Liberty was not allowed to push for a controlling interest in Sirius for a 36-month period.  As of March 6th 2012, this agreement’s timer officially hit zero.

In the 128 trading days since, Liberty’s filings with the SEC had remained rather quiet until August 10th, when a Form 4 filing indicated that Liberty had purchased 43 million shares of SIRI.  Now, the absence of any transactions between March and August was hardly a surprise to shareholders of either company; Liberty’s request with the FCC to take de facto control of Sirius was rejected on May 4th. Interestingly, Liberty purchased another 51.3 million shares of Sirius between August 13th and 16th, before filing a new petition to take de jure control of Sirius on August 17th.  For those who didn’t take Latin in college, the term de facto means “concerning fact,” while de jure means “concerning law.”

In layman’s terms, Liberty could have taken de facto control of Sirius without a 50% stake in the company, but the FCC’s reluctance to grant such a request meant that de jure control was the next best option. While the FCC has not released its official decision on whether or not it will grant Liberty’s request, its continued purchasing activity shows that Malone and Co. are optimistic that they will receive an approval.

Furthermore, a recent request by Sirius’ remaining shareholders to prevent further Liberty purchases was denied by a Delaware Chancery Court judge late last month.  The shareholders’ concerns were obviously over Liberty’s steadily growing share in their company, but they also requested that Sirius execs be allowed to exercise anti-takeover measures. Such measures, like the “Macaroni” and “Poison Pill” defenses, were expressly prohibited in Liberty’s original bailout plan.  Due to this pre-existing arrangement, it is unlikely that any future judicial decisions will allow for the usage of anti-takeover defenses.  If this is, in fact, the case, there seems to be little preventing Sirius from completing its takeover efforts, save for an 11th hour rejection by the FCC.

From an investing standpoint, the markets have responded favorably to Liberty Media’s pursuit of Sirius, as LMCA and LMCB have each returned 5.1% since August 10th.  Shares of SIRI, meanwhile, have returned a modest 2.4% over this time period.  Additionally, both Canaccord Genuity and Wunderlich have reiterated their buy ratings on LMCA, with price targets averaging $110.25.  As for SIRI, Wunderlich reiterated its hold rating with a price range between $2.10 and $2.50.

The hedge fund industry prefers Liberty Media, as 48 funds held long positions in LMCA at the end of last quarter’s round of 13F filings.  Some prominent Liberty bulls are Michael Lowenstein, Barry Rosenstein, and Jim Chanos. Thirty-seven fund managers including Julian Robertson, John Griffin, and Philippe Laffont, are long SIRI.

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