The characteristically intricate deal is seen as a means of prepping Liberty’s balance sheet for its pursuit of Time Warner Cable. Liberty has made it clear it hopes to consolidate the nation’s No. 2 cable operator with its Charter Communications.
Liberty acquired a controlling stake in Charter last year and is expected to make its run at TW Cable through Charter, but Liberty may also wind up helping to finance the deal. TW Cable has a market cap of nearly $38 billion.
Liberty already controls Sirius through a series of equity deals it made with the satcaster, starting with an emergency loan of $530 million in 2009 with the company was struggling.
The deal proposed by Liberty to Sirius’ board late Friday calls for Sirius shareholders to receive .0760 shares of Liberty Series C stock for every share of Sirius. Before that transaction, existing shareholders of Liberty Series A and B shares would receive Series C shares on a two-to-one basis in order to create a liquid trading market for Series C shares. Liberty’s offer amounts to a modest 3.1% premium over Friday’s closing price ($3.57) of Sirius shares.
Liberty’s pitch to Sirius shareholders is that they are getting the chance to convert their non-controlling stock holdings into shares that would amount to about 39% of the larger Liberty Media entity. Liberty already encompasses sizable stakes in Charter, Live Nation Entertainment and Barnes & Noble, and it is poised to get bigger still if Charter is successful in bagging TW Cable.
“Sirius shareholders will continue to participate in Sirius’ future prospects along with Liberty’s broader portfolio of businesses and opportunities,” Liberty CEO Greg Maffei said in announcing the offer. “We believe the combined company will have better access to capital and all of Liberty’s shareholders — both its current shareholders and the Sirius shareholders who become Liberty shareholders as a result of the proposed transaction — will enjoy enhanced liquidity as shareholders of a $27 billion market capitalization company.”
Liberty chairman Malone in a statement hinted at the larger focus behind the Sirius maneuver.
“It will enable us to focus our energies on the pursuit of new opportunities across the expanded portfolio of Liberty’s businesses and to optimize our capital structure to produce the maximum possible returns to all shareholders,” he said.
Liberty’s offer will be evaluated by a special committee of Sirius’ independent directors, and it will be put to a vote of shareholders but should not require additional regulatory approvals, Liberty said. As usual with Malone deals, the structure is designed to be tax free.