SIRI - Sirius XM Radio

[Happy]

For very good businesses it has rarely been a good idea to fund acquisitions with stock.

Combined with the decreased buybacks and being at the lower end of the leverage range, they must really think that SIRI is not cheap at all. Otherwise they obviously should have used cash/debt.

[vince]

For very good businesses it has rarely been a good idea to fund acquisitions with stock.

Combined with the decreased buybacks and being at the lower end of the leverage range, they must really think that SIRI is not cheap at all. Otherwise they obviously should have used cash/debt.

 

Well at over 20 times fcf I dont think anyone really believes its cheap.  And they have commented that the buyback was lowered cause the price got away from them.  I love the fact that they used stock in this case.  it is so rare to see companies do massive buybacks at lower valuations and then turnaround and issue shares at full valuations.  Gotta love it.  What do you think the stock is worth and why?

[EliG]

http://radiofreemobile.com/2018/09/25/sirius-xm-pandoras-box/

[Shooter MacGavin]

http://radiofreemobile.com/2018/09/25/sirius-xm-pandoras-box/

 

I sort of disagree with a third of what this poster says.  If you want to understand the deal rationale, listen to the M&A conference call.  Sirius is not becoming "obsolete" because of satellite...they have an in car-app. 

 

"Sirius XM already has $6.4bn long-term debt on its balance sheet of which $4.7bn is matched with intangible assets and goodwill making its financial position look already stretched."

"With only $250m in cash, Sirius XM is not really in a position to raise another $3.5bn in debt making equity as its only realistic option"

 

this is someone who doesn't understand how corporate leverage works.

[vince]

http://radiofreemobile.com/2018/09/25/sirius-xm-pandoras-box/

 

I sort of disagree with a third of what this poster says.  If you want to understand the deal rationale, listen to the webcast.  Sirius is not becoming "obsolete" because of satellite...they have an in car-app. 

 

"Sirius XM already has $6.4bn long-term debt on its balance sheet of which $4.7bn is matched with intangible assets and goodwill making its financial position look already stretched."

"With only $250m in cash, Sirius XM is not really in a position to raise another $3.5bn in debt making equity as its only realistic option"

 

this is someone who doesn't understand how corporate leverage works.

 

I cant believe how many people that write stuff about leverage are clueless.  I dont mean on this board, i mean everywhere

[Liberty]

New writeup about SIRI and SPOT by Scuttleblurb (subscription required):

 

https://www.scuttleblurb.com/sirius-pandora-siri-spotify-spot-long-term-relevance-long-term-dominance/

[jgyetzer]

Is anyone else seeing Liberty Sirius C shares up like 30% after hours?  Is that a mistake?

[Liberty]

http://yetanothervalueblog.com/2020/04/libertys-no-longer-trackersforlife-lsxma-fwona-lyv-siri.html

[merkhet]

http://yetanothervalueblog.com/2020/04/libertys-no-longer-trackersforlife-lsxma-fwona-lyv-siri.html

 

I just don't get this. Normally, I agree with Andrew's POV on things, but hasn't putting Live Nation together with SiriusXM always been the end game?

[KJP]

http://yetanothervalueblog.com/2020/04/libertys-no-longer-trackersforlife-lsxma-fwona-lyv-siri.html

 

I just don't get this. Normally, I agree with Andrew's POV on things, but hasn't putting Live Nation together with SiriusXM always been the end game?

 

He's not challenging the strategic logic, just the price given current conditions.  His point (no view on whether it's right) is that a true arms-length buyer would have gotten a much better deal from FWONA.  So, in his view, Liberty bailed out FWONA at the expense of Liberty Sirius shareholders.  Here's the key paragraph in the piece:

 

And make no mistake: this is a bail out. Formula One has been hit by an unexpected typhoon in Corona. They needed money, and their most obvious liquidity source was their mammoth stake in Live Nation. Selling that stake would raise all sorts of issues: there’d be a tax drag, and given Formula One was something of a forced seller of a large but not controlling stake in Live Nation, selling the block would likely come with a mammoth discount. Instead, Liberty Sirius paid market price to Formula One for the stake. Liberty bailed Formula One out and got nothing in return. In fact, not only did Liberty Sirius get nothing in return; they got stuck with a potential tax liability (if Liberty were to ever sell the stake in a taxable manner, Liberty Sirius shareholders would now be on the hook for the taxes, not Formula One. Greg said they did that because their charter didn’t allow them to account for taxes between subs) and they sold Formula One a call option on a piece of the Live Nation stake so that they can participate in some of the near term upside if Live Nation quickly bounces back.

[Munger_Disciple]

This is in general an issue with tracking stocks. You are relying on control shareholders and management to allocate assets and liabilities in a "fair" manner among the trackers in a re-attribution.

 

In addition to revenue being greatly impacted by COVID-19, Formula One's leverage is very high which meant that the bailout was essential to their survival; thus it is a reasonable argument that Liberty Sirius did not get paid for bailing out F1. But I don't think Liberty SiriusXM shareholders need to worry about tax hit from LYV shares. After all, this is a Malone play and there will be no taxes paid.

[merkhet]

http://yetanothervalueblog.com/2020/04/libertys-no-longer-trackersforlife-lsxma-fwona-lyv-siri.html

 

I just don't get this. Normally, I agree with Andrew's POV on things, but hasn't putting Live Nation together with SiriusXM always been the end game?

 

He's not challenging the strategic logic, just the price given current conditions.  His point (no view on whether it's right) is that a true arms-length buyer would have gotten a much better deal from FWONA.  So, in his view, Liberty bailed out FWONA at the expense of Liberty Sirius shareholders.  Here's the key paragraph in the piece:

 

And make no mistake: this is a bail out. Formula One has been hit by an unexpected typhoon in Corona. They needed money, and their most obvious liquidity source was their mammoth stake in Live Nation. Selling that stake would raise all sorts of issues: there’d be a tax drag, and given Formula One was something of a forced seller of a large but not controlling stake in Live Nation, selling the block would likely come with a mammoth discount. Instead, Liberty Sirius paid market price to Formula One for the stake. Liberty bailed Formula One out and got nothing in return. In fact, not only did Liberty Sirius get nothing in return; they got stuck with a potential tax liability (if Liberty were to ever sell the stake in a taxable manner, Liberty Sirius shareholders would now be on the hook for the taxes, not Formula One. Greg said they did that because their charter didn’t allow them to account for taxes between subs) and they sold Formula One a call option on a piece of the Live Nation stake so that they can participate in some of the near term upside if Live Nation quickly bounces back.

 

https://www.barrons.com/articles/saudi-arabia-sovereign-wealth-fund-bought-live-nation-stock-51587994810

 

I’m not so sure Formula One couldn’t have offloaded its stake around market value. (I know this is just ~20% of the stake Formula One would have to sell.) The counterfactual is difficult to predict.

 

And yes, I get the part about arms length transaction even if I don’t agree with it. It’s the stuff about Liberty SiriusXM not being a “pure play” on levered SiriusXM that I don’t quite grok.

[bizaro86]

Aren't tracking stocks still the same corporation?

 

If that's true, could the formula one entity go bankrupt without taking the other entities with it? If Liberty Sirius was already in effect on the hook for the debt, that makes the terms more bearable.

 

I dont know if that's the case though, is the formula one debt in subsidiaries maybe?

[merkhet]

Aren't tracking stocks still the same corporation?

 

If that's true, could the formula one entity go bankrupt without taking the other entities with it? If Liberty Sirius was already in effect on the hook for the debt, that makes the terms more bearable.

 

I dont know if that's the case though, is the formula one debt in subsidiaries maybe?

 

IIRC Formula One’s $2.9 billion bank loan is to Delta TopCo, the Formula One subsidiary. I don’t think there’s any guarantees from the ParentCo, but, honestly, it’s been a while since I’ve reviewed it.

[compounding]

Andrew seems to be entirely focused on the costs and risks to LSXM in this transaction. His analysis of the potential upside for LSXM shareholders is basically "ehm it might work out." This approach is of course very useful for longs, as it provides you with good arguments that you should think about, and preferably be able to answer.

 

I think the cost/price of this transaction will ultimately be decided by the future value of Live Nation. If they are going to need capital injections down the road at low equity prices it's going to look expensive that LSXM paid a pre tax price, gave up upside via the call spread, and financed it with an intergroup loan at 5.75%. If LYV trades back to where it did before this drawdown, it's going to look like they took advantage of FWON during a time of need. I think Malone and Maffei are bullish on the prospects of Live Nation, and wanted to make sure the deal looks fair to ensure trust in their tracking stock structure. Remember that they have a significantly larger portion of their wealth in LSXM than in FWON, so it could potentially look especially bad if they favored that tracker.

 

It's also possible that they had interest in the LYV stake from the Saudis which provided something of a floor for what they could conceivably price the stake at, as merkhet hinted at. Other things Maffei mentioned on the call was their history of doing these things on a pretax basis, and that their intention is to not pay any taxes on it (shocking, I know!).

 

Another thing to consider is the strategic value to LSXM. Combining LYV with SIRI has potential synergies for both sides. LYV can market concerts to a large audience in a targeted way, and SIRI can use exclusive content created by LYV to make their bundles more valuable, just to provide some examples.

[Munger_Disciple]

Another thing to consider is the strategic value to LSXM. Combining LYV with SIRI has potential synergies for both sides. LYV can market concerts to a large audience in a targeted way, and SIRI can use exclusive content created by LYV to make their bundles more valuable, just to provide some examples.

 

I know that's the theory but I am suspicious of the synergies. I can understand wanting to be at a live concert, but listening?? Seems far fetched to me given that you can listen to any song on demand at anytime.

[Liberty]

They could already do all kinds of things with LYV even if it wasn't in the same tracker, so the argument that this was unlocked here isn't very convincing, IMO.

[scorpioncapital]

The rights offering is quite valuable too. Personally I like this deal and I opened a position in LSXMA.

[compounding]

Another thing to consider is the strategic value to LSXM. Combining LYV with SIRI has potential synergies for both sides. LYV can market concerts to a large audience in a targeted way, and SIRI can use exclusive content created by LYV to make their bundles more valuable, just to provide some examples.

 

I know that's the theory but I am suspicious of the synergies. I can understand wanting to be at a live concert, but listening?? Seems far fetched to me given that you can listen to any song on demand at anytime.

 

I'm guessing you're not a music fan then? Listening to live recordings of your preferred music is often very appreciated among fans, and most artists release albums from their most successful concerts. SiriusXM already has a lot of live performances in their content packages, just scroll through the press releases from the last year if you need examples.

 

They could already do all kinds of things with LYV even if it wasn't in the same tracker, so the argument that this was unlocked here isn't very convincing, IMO.

 

Well, of course moving it from one tracker to another in itself isn't going to unlock anything, I don't think anyone is arguing that. The point was that there is strategic value in further integrating the companies, and that that should be taken into account when discussing the merits of this transaction. I don't think LSXM owning 72% of SIRI and a 34% of LYV in a tracking stock structure is the end state, lets just put it at that.

[jgyetzer]

Can anyone give guidance on how to exercise the LSXMR rights on the IBKR platform? 

[scorpioncapital]

Click on messages , corporate actions. The last message about the offer should have a red button at bottom which says something like 'select ca choice.'

 

[jgyetzer]

Awesome. Thanks!

[scorpioncapital]

Now I've got a question)

How does over allotment work on a rights ? They said something in proportion to the rights you own ? For example say I own 100 rights. Can I specify in the overallotment preference box (which will be prorated most likely ) I want one million shares or I'm limited to my original 100 rights ?

[jgyetzer]

I think in theory you can request oversubscription with no limit.  Given the pro rate distribution I’m not sure how much you’d actually get unless the offer is wildly undersubscribed.  Worth a shot though...

 

From the S-3:

 

“Under the oversubscription privilege, each rightsholder which exercises its basic subscription privilege, in full, will have the right to subscribe, at the subscription price, for up to that number of shares of our Series C Liberty SiriusXM common stock which are not purchased by rightsholders under their basic subscription privilege. If a rightsholder delivers an oversubscription request for shares of our Series C Liberty SiriusXM common stock and we receive oversubscription requests for more shares of our Series C Liberty SiriusXM common stock than we have available for oversubscription, the rightsholder will receive its pro rata portion of the available shares of our Series C Liberty SiriusXM common stock based on the number of shares it purchased under its basic subscription privilege or, if less, the number of shares for which it oversubscribed.”

[gfp]

I've been out of town so apologies if this was already posted but Ted Weschler has been a buyer of LSXMK here recently -

https://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0001560385

 

(through the money runs at Berkshire obviously)