Liberty, which already owns about half of the satellite-radio company, made an offer last week valuing the rest at $3.68 a share, or about $10.6 billion. The stock closed at $3.83 today in New York, more than 4 percent higher than the bid by Liberty, an investment company controlled by billionaire John Malone.
The reaction signals that Liberty may face opposition in getting investors to approve the current deal. Greg Maffei, the company’s chief executive officer, said last week that Liberty plans to tap the cash of Sirius to potentially finance other transactions, including a possible bid for Time Warner Cable Inc. (TWC:US) Liberty is contemplating making a Time Warner Cable deal through another of its holdings, Charter Communications Inc. (CHTR:US)
“Liberty is essentially offering a very low premium,” Jim Boyle, managing director at SQAD LLC, an advertising tracking and forecasting firm, said in an e-mail. There’s speculation that “the Sirius special committee of independent board members will counter higher.”
Sirius’s board is forming a committee of directors to consider Liberty’s proposal. Any deal would be subject to approval by those board members, as well as a majority of the New York-based company’s shareholders.
Liberty has proposed creating a new class of stock, called Series C, and offering 0.076 of a share for each Sirius share. The deal would give Sirius a market value of about $23 billion.
“Sirius XM will generate more cash for Liberty,” Maffei said last week. “It’s still below its target leverage rate, which we might increase. That could be put toward financing a Time Warner Cable deal.”
Charter, meanwhile, is preparing a takeover offer of about $135 a share for Time Warner Cable, people familiar with the situation have said.
The Sirius deal “would provide incremental capital for Liberty” that would help it avoid being diluted in any deal between Charter and Time Warner Cable, Maffei said. Sirius has generated about $895 million in free cash flow over the past 12 months, data compiled by Bloomberg show.
Sirius shares have more than doubled over the past two years, fueled by a recovering auto market. A surge of car sales has increased the number of satellite-radio installations, helping lift Sirius’s subscriber (SIRI:US) count to 25.6 million at the end of September.
Consumer advocate Ralph Nader, founder of Public Citizen Inc., said today that Malone’s offer to buy out Sirius at $3.68 is “ludicrous” and urged activist investor Carl Icahn to “take notice and interest.”
“I am sure that I along with other shareholders in Sirius XM will be interested in a legal challenge to John Malone’s company for lowballing Sirius XM’s shareholder value,” Nader said in a statement.
Icahn didn’t immediately respond to a request for comment.
If the Sirius special committee accepts the offer, Liberty also may buy back more shares, Maffei said. While Malone previously said he intended to spin off Sirius, “Liberty changes its mind all the time,” Maffei said.
Sirius shareholders will own about 39 percent of Englewood, Colorado-based Liberty, which would count Sirius as a unit, if the transaction closes. Liberty shareholders will get two Series C shares for each Series A and B share they already have.
“It will enable us to focus our energies on the pursuit of new opportunities across the expanded portfolio,” Malone said in a statement last week. Liberty owns the Atlanta Braves and a stake in Live Nation Entertainment Inc. in addition to its Charter investment.
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