Things have been getting interesting for SIRIUS XM Radio Inc (NASDAQ: SIRI) over the past several days as the situation involving Liberty Media Chairman John Malone and the satellite radio provider have intensified significantly. While shares of SIRI have remained relatively steady, holing between the 1.99 and 2.12 level over the past five days, the prospect of Liberty holding a control premium following a potential spinoff of SIRI has intrigued investors.
Liberty currently holds a 46% stake in SIRI and according to the media holding company they intend to take control of SIRI’s 13-seat board. While Malone has made his intentions clear he has also insisted that Liberty is happy with SIRI CEO Mel Karmazin and there are no plans to make changes at the top.
What Malone is looking to do is spin off SIRI into its own publicly held company and he said as much to reporters at the Allen & Co. conference, saying “If I’m in control, I like to have separate companies, run independently, with public shareholders investing in that business. There is no question eventually Sirius will be an independent company. The question is, in what time frame and in what circumstances?”
Just what kind of control Liberty gains is yet to be seen as they still need FCC approval to complete a takeover due to the fact SIRI holds airwave licenses issued by the FCC. This has led many to speculate that Liberty would split off its SIRI stake as a separate entity and give their stockholders the option to hold or sell their Sirius shares, a move that would be made possible through the Reverse Morris Trust.
Holding on to those shares may sound like a solid idea right now as SIRI has been reporting strong figures of late and have raised their targets for fiscal 2012 targets, calling for 1.6 million net subscriber additions and $3.4 billion in revenue.
These targets were raised following impressive subscriber growth in the second quarter 2012 in which they gained 622,042 members, a 38% increase on a year-over-year basis. Add that figure to the first quarter numbers and SIRI pulled in 1,026,638 subscribers compared with a total addition of 825,211 subscribers in the comparable period of 2011. Those figures would suggest that the 1.6 million net subscriber additions for fiscal 2012 are conservative to say the least, which in turn would mean the revenue target is the same.
There have been a number of circumstances working in SIRI’s favor, namely the increase in auto sales which jumped 22% last month. This figure bodes well for SIRI as they typically see about half of new-car buyers continue to pay for satellite radio after their free trials run out.
SIRI has also managed to avoid the collapse many predicted due to the increased popularity of streaming music form services like Pandora and Spotify. In fact, as the earlier figures seem to suggest, SIRI’s satellite services are holding their own against this new wave of competition and the company is advancing their own streaming platform that should keep subscribers happy.
Perhaps the most attractive aspect of SIRI lies in the fact that Malone is high on SIRI, indicating that he sees significant growth for the satellite radio provider in the future.
Of course there are some concerns about SIRI, namely the equivalent of 6.5 billion shares outstanding, a figure that could prevent a spike in the share price, but the company appears to be growing and staying current. If they maintain the pace that they are currently on it would seem likely that their share price would follow suit.