* Liberty offers 3 percent premium for Sirius XM shares
* Sirius buyout still needs shareholder approval
By Liana B. Baker
Jan 3 Liberty Media Corp on Friday said
it would offer to buy out the minority shareholders in satellite
radio provider Sirius XM Holdings Inc, in a deal that
could give cable mogul John Malone a freer hand in driving cable
Liberty, which has a large stake in cable operator Charter,
has made no secret of its pursuit of No. 2 cable provider Time
Warner Cable Inc. Liberty Media Chief Executive Officer
Greg Maffei said that Friday's offer to make Sirius XM a
subsidiary gives holding company Liberty the financial
flexibility to pursue other deals.
Liberty's Maffei said in an interview that one scenario this
deal allows for could be for Liberty to acquire more Charter
stock. It currently owns 27 percent of Charter shares.
Maffei said that some think Charter has to maintain a high
percentage of Charter stock "so it becomes a good operating
asset for us and not an investment company asset."
"I'm not suggesting this is correct but one supposition
could be that this allows us to go make incremental investments
in Charter, to maintain our stake in Charter because we have
access to the cash flow at SIRI and the borrowing capacity at
SIRI. That's one way that (it) could help get the Time Warner
Cable deal done," he said.
Maffei declined to comment on when Charter might make an
offer for Time Warner Cable. Reuters has reported that an offer
valuing the cable company at below $135 per share could come
early this year.
Maffei told analysts on a conference call on Friday that
Liberty Media's new market value after it absorbs Sirius XM will
be $27 billion. This is up from its current market value of
Maxim Group analyst John Tinker said that Sirius XM is
expected to generate $1.5 billion in earnings before interest,
taxes, depreciation and amortization this year, which is
additional cash now on Liberty's balance sheet.
"What Liberty is doing here is giving themselves a big
balance sheet, a huge gun. Now that Liberty Media is going up to
$27 billion, suddenly Time Warner Cable doesn't look like such a
big stretch," Tinker said.
One of the challenges of a Charter-Time Warner Cable tie-up,
is that Time Warner Cable is much larger than Charter, according
to analysts. Charter, the No. 4 cable operator, has a market
capitalization of around $13.6 billion, much smaller than Time
Warner Cable's nearly $38 billion market value.
Liberty executives have so far said they prefer to use
Charter as its agent of cable consolidation, but it has not
ruled out involving Liberty in a transaction.
Liberty's all-stock buyout offer for Sirius XM could be
worth more than $10 billion, given that minority shareholders
control about 46 percent of the company, which has a market
capitalization of $21.5 billion.
Liberty Media became Sirius's majority owner in January 2013
after U.S. regulators gave it the green light to take control of
the satellite radio operator. Malone, Liberty's chairman, is
notorious for creating complicated, tax-efficient deals
Liberty said on Friday each share of Sirius common stock
would be converted into 0.0760 of a new share of Liberty's
Series C common stock which has no voting right, the equivalent
of $3.68 a share.
That figure is just barely above Sirius XM's closing price
of $3.57 on Friday and Liberty Chief Executive Officer Greg
Maffei said a special committee of independent board members
would be formed at Sirius XM to look at the offer and that it
might negotiate a higher price with Liberty. The deal is also
subject to shareholder approval.
Liberty said following completion of the deal, Sirius's
public shareholders would own about 39 percent of Liberty's
outstanding common stock.
In 2009, Liberty became the largest shareholder in Sirius
after it floated the company a $530 million loan to help it
avoid bankruptcy. Terms of that deal allowed for Liberty to
convert the loan into preferred shares.
The financially strapped company Liberty rescued in 2009 is
in much stronger shape five years later and has seen its shares
skyrocket more than 2,600 percent over the past five years.
It has gained a key foothold in the vehicles market, which
is seeing a rebound, with its radios in 70 percent of new cars
in the United States.