Sirius RX Stock Holders-- Sell Now!
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
How long have we been following the so called merger or buyout between Sirius XM Radio (NASDAQ: SIRI) and Liberty Media Corporation (NASDAQ: STRZA)? It seems like it has been going on for years. But as time progresses it looks more and more like this will be a win-win for Liberty and Siri stock holders are going to be forced into a death march as the shares of the stock possibly dwindle to nothing.
It is really tough right now for current Sirius shareholders as they struggle with what to do with the positions they hold presently. How can any of them win? The stock price continues to fall. The company has been able to do quite a bit marketing its product through new auto sales; but with the perception of "limited competition" but baffled shareholders wrestle with why the stock continues to fall. Prices are eventually going to hit $1.90 or lower and what is going to happen to all those who hold the stock? As it drops investors are kicking themselves for not getting out. And Liberty Media is enjoying the morphing process as it continues to benefit from the bearish glide and struggling shareholders unable to make a decision on what to do with the stock. Taking the emotion out of the situation, the best thing to do right now is sell before the stock plummets to $1.60.
Here is a good scenario of what is really going to happen
Liberty will enact a spin-of called a Reverse Morris Trust. The thinking behind this strategy is to redistribute shares to its current shareholders tax free. This is Liberty’s interest in Sirius—this “Trust” is a vehicle that allows companies to distribute the shares of a subsidiary to its investors in a tax free manner, rather than having to sell a large position and pay taxes on it.
A spin off like this also benefits Liberty shareholders more. Liberty shareholders get the free shares of Sirius and sell them for cash immediately which in turn will drive the price of the stock down even further. At least this is the pattern of thinking for some.
Let’s face it; investor sentiment right now is at funeral level for Sirius XM Radio. Normally, if investors are interested in long term investments with a company, the current price looks like a nice entry point. Instead, fear influences the camp. At one point, the stock was trading at $2.40 and no one would think of exiting because it was a great buying opportunity. Now, trading below $2.00, many struggle with relinquishing positions.
Liberty Media will continue to be the one who comes out ahead in this whole soap opera. It is mainly interested in acquiring the company solely for its assets, which include $8 billion in future tax benefits and very little about the business or the share holders. So Sirius XM Radio stock holders—sell now while you still have a small principle. The time will come soon when you may not have any.
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