A Lot of Value Coming to This Media Giant

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Many companies have announced their special dividend payments before the “fiscal cliff” arrived, in order to avoid paying higher taxes in the future. Recently, another company joined the dividend buffet with $0.05 per share special dividend, which will be paid on December 28 on the record of December 18. In addition, this company also announced the $2 billion share buyback program as another way to benefit its shareholders. That company is Sirius XM Radio (NASDAQ: SIRI).

Sirius has been a successful stock since the low of 2009. It has been on the uptrend for the last 4 years, from only around $0.10 per share in the beginning of 2009 to $2.79 per share currently, creating a nearly 30-bagger stock. Sirius has never paid any dividends over the past 10 years. At the current trading price, the $0.05 per share dividend would represent nearly 1.8% yield. With nearly 6.58 billion shares outstanding, the cash outflows for dividends would be nearly $329 million. The majority of this cash dividend would flow to Liberty Media (NASDAQ: STRZA) as it is currently the largest shareholder of Sirius, with a 49.8% stake. Liberty Media has raised its stake by 9.8% since the last month. This case is similar to Las Vegas Sands (NYSE: LVS) with its $2.75 special dividend. Las Vegas Sands’ chairman and CEO Sheldon Adelson and his family hold as much as a 52.4% stake in the company, thus the special dividend would create nearly $1.19 billion cash payment for him and his family.

The special dividend and share buyback announcement came after the firm had a new $1.25 billion five-year senior secured revolving credit facility with several banks and financial institutions. As of September, Sirius had more than $556 million in cash on hand. Thus, I think that the share buybacks and dividends combined would largely come from the revolving credit facility.  Costco Wholesale (NASDAQ: COST) has also funded its $3 billion special dividend via debt issuance (senior unsecured notes) as well, to pay $7 dividend per share.

Liberty Media initially invested up to $530 million in Sirius when Sirius was facing bankruptcy in March 2009, with the hefty interest rate of 15%. In exchange, Liberty Media got preferred shares convertible into 40% of the company’s stock. In the past year, Sirius and its largest shareholder Liberty Media have been fighting over the control of the company. Its CEO, Mel Karmazin, is well-known for not working for controlling shareholders, would step down in February next year. Previously, the CEO said that he couldn’t give up the control of the company without securing a premium price for the rest of the shareholders. Mel Karmazin previously didn’t want the share buybacks because it would help to increase Liberty Media’s stake in the company. However, in this share buyback program, Liberty Media announced to participate in Sirius’ in a pro rata basis to keep its stake in the company unaffected from the program. 

John Malone, the CEO of Liberty Media stated that he liked to get back $1.5 billion purchases to increase its stake from 40% to nearly 50%. Interestingly, after the share buybacks, Liberty Media would sell to get $1 billion in the pro-rata basis, plus the $164 million special dividend, and roughly $350 million in in capital appreciation in Sirius’ purchases from 40% to 49.8% (estimated $0.5 - $0.6 per share in capital appreciation as the average price to increase Liberty Media’s stake in Sirius was around $2.2 - $2.3 per share). Thus, Liberty Media would largely get back its $1.5 billion as John Malone wished without any cash outflows.

My Foolish Take

Looking deeper into the deal, personally I am getting more excited with Liberty Media. With Sirius’ current market capitalization of $14.53 billion, Liberty Media’s stake in the company would be worth more than $7.23 billion. In addition, the company would get back its $1.5 billion that it had used to increase its stake in Sirius without putting any further investments. It would represent a lot of value for Liberty Media in the future.


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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