The board of Sirius XM Radio Inc approved a $2 billion common stock repurchase program and issued a special dividend, giving a big payout to its biggest shareholder, Liberty Media.
Liberty Media, which owns about 49.8 percent of Sirius' stock and is trying to gain control of the radio company, said it will participate in the company's share repurchases in a way that will not affect its ownership interest.
Sirius, the largest U.S. satellite radio provider with more than 23 million subscribers, declared a special cash dividend of 5 cents per share of common stock, payable on December 28 to shareholders as of December 18. The company expects to pay out about $325 million in total for the dividend.
Based on its stake, Liberty will be paid roughly $160 million from the special dividend, according to Macquarie analyst Amy Yong, who expects the buyback to be implemented in 2013.
Yong estimated Liberty spent about $1.6 billion in recent months to raise its Sirius XM stake from 40 percent.
The company had $556.27 million in cash and cash equivalents for the quarter ended September 30. It announced on Wednesday that it entered into a new $1.25 billion revolving credit facility, which should provide financial flexibility for the dividend payout, according to ISI analyst David Joyce.
The investment firm ISI expects Sirius to have "plenty of cushion" for its dividend, estimating the company will end the year with about $480 million in cash.
Sirius did not reveal the timing of the buyback, which had been expected by analysts and investors. It said the timing and amount of shares repurchased would be based on the "evaluation of market conditions."
SPURRED BY THE 'FISCAL CLIFF'
ISI said in a research note that the moves were earlier than expected and that the buyback was bigger than the $1.3 billion it expected. The note went on to call the special dividend "a modest surprise" that is "in line with other companies' fiscal cliff-related pre-tax hike moves."
More than a dozen other companies, including Wal-Mart Stores Inc, have moved 2013 dividend payments into December or declared special December dividends.
Without action from Congress in coming weeks, tax cuts on capital gains and dividends will expire at the end of 2012. The accelerated dividend payments allow shareholders to avoid higher tax rates in 2013, which could double for the wealthiest investors.
It wasn't that long ago that Sirius was badly strapped for cash and turned to John Malone's Liberty Media for funds.
Liberty acquired a roughly 40 percent stake in the satellite radio company in 2009 as part of a deal in which it loaned Sirius $530 million to help it stave off bankruptcy.
Sirius, home of the popular shock jock Howard Stern, has been locked in a battle for control with Liberty for most of 2012.
Its CEO Mel Karmazin has said he will be stepping down in February 2013, also a long-anticipated move since Karmazin is famous for not wanting to work with controlling shareholders.
Sirius XM shares rose 6 cents or 2.3 percent to $2.84 while Liberty Media shares rose $1.21 or 1.1 percent to $107.62.
(Additional reporting by Jennifer Saba in New York and Chandni Doulatramani in Bangalore; Editing by Peter Lauria, Joyjeet Das, Nick Zieminski and Dale Hudson)