Liberty to Boost Sirius Stake


After being rejected by the Federal Communications Commission in its attempt to gain de facto control of Sirius XM, cable legend John Malone's Liberty Media said it would purchase an additional 5% of the satellite radio giant's stock, a move that could push the media giant closer to a spin-off of the unit.
Liberty, which already owns preferred shares convertible into about 40% of Sirius stock, said it has entered into a forward purchase contract for 302 million shares at $2.15 per share. The $650 million purchase is expected to close in the third quarter and would give Liberty 45.2% of Sirius stock, pushing it closer to the 50.1% it needs for a tax-free spin-off of the company.
Liberty had tried to gain de facto control of Sirius' wireless licenses, claiming in FCC filings that although it did not own a majority of Sirius stock, as the largest individual shareholder it basically ran the show. The FCC did not agree and last Friday rejected Liberty's claim.
Liberty needs to own 50.1% of Sirius stock in order to spin the satellite radio giant off in a Reverse Morris Trust transaction, a vehicle it has used to spin off assets in the past.
On a conference call with analysts to discuss first quarter results, Liberty CEO Gregg Maffei said the company entered into the contract because "we thought it was attractive financially and because we thought it increased some of our options around [our] ultimate relationship with Sirius XM."
Liberty is hoping that with the larger stake it can convince the FCC it as de facto control of Sirius. Maffei said on the call that Liberty has 30 days to file an appeal of the FCC decision.
On the call Maffei said Liberty had several options if the FCC grants it de facto control, including increasing its stake to 51%, spinning off the unit, or taking full control of the radio giant. Maffei wouldn't say if the company was favoring any particular option.
Separately, Liberty reported a strong quarter with subscribers up 7% at its Starz premium channel. According to Liberty Starz subscribers reached an all-time high of 20.1 million customers and its Encore service rose to 33.6 million, paced by renewal agreements with DirecTV and Cox Communications during the quarter. Revenue increased 4% to $405 million at Starz and adjusted OIBDA declined 3% to $127 million in the period, primarily the result of a decrease in the Starz Distribution business which more than offset improved results at its Starz Channels business.