Sirius XM Radio Inc. (SIRI:US) rose the most in seven months after the chief executive officer of Liberty Media Corp. (LMCA:US), the largest investor in the satellite broadcaster, said Sirius can borrow more to return cash to shareholders.
Sirius rose (SIRI:US) 7.6 percent to $2.48 at the close in New York time, the biggest gain since Jan. 5. Shares of New York-based Sirius have advanced 36 percent this year.
Liberty Media, which owns more than 46 percent of Sirius and is attempting to gain control of the company, said today it would delay a so-called Reverse Morris Trust at least six months to take advantage of Sirius’s borrowing capacity. Sirius said today it plans to sell $400 million of 10-year senior notes.
“Our view is that Sirius is underleveraged and there’s plenty of opportunity for share repurchase,” Liberty Media CEO Gregory Maffei said on a conference call. “Being a shareholder, an increased shareholder in Sirius, is a good thing.”
Liberty Media plans to take over Sirius if it receives approval from the Federal Communications Commission, according to a May 31 filing. Maffei said today Sirius is still waiting to hear back from the FCC on the company’s application for de facto control.
The move would allow Liberty Media to execute a Reverse Morris Trust, or RMT, which involves splitting off its Sirius stake as a separate entity. Liberty Media could then distribute the shares to Liberty shareholders while avoiding paying taxes on the separation. Liberty Media shareholders would also avoid paying taxes on the shares received, according to James Ratcliffe, an analyst at Barclays Plc in New York.
“An RMT in the short term is probably not as attractive to us meaning in the next six months or something like that, because we’re probably more interested in seeing them re-lever and get the appropriate valuation at Sirius,” Maffei said.
Liberty Media, the holding company controlled by billionaire John Malone, also announced today it plans to spin off its Starz LLC premium cable channel. The Starz spinoff “has no bearing on our impact at Sirius,” Maffei said.
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