Sirius XM Radio Inc (NASDAQ:SIRI), the US satellite radio company, today announced that its board of directors has approved a program to buy back $2 billion of the company’s common stock.
Liberty Media Corp (Capital) (NASDAQ:LMCA), who owns roughly 49.8 percent of Sirius’ stock and wishes to gain control of the company, has indicated that it will take part in the company’s share buyback program on a pro-rata basis so that its ownership interest will not be affected.
Sirius XM Radio Inc (NASDAQ:SIRI) plans to fund the stock repurchases through cash on hand, future cash flow from operations, and borrowings under its revolving credit facility. The company had roughly $556.30 million in cash and cash equivalents at the finish of the quarter ending September 30.
The board of directors for Sirius XM Radio Inc (NASDAQ:SIRI) also declared a special cash dividend, valued at $0.05 per share of common stock – meaning a big pay out for Liberty Media. The dividend is payable on December 28, 2012 to stockholders of record as of the close of business on December 18, 2012. The company’s preferred stock will participate in the dividend on an as-converted basis, in accordance with its terms.
Sirius’ preferred stock will participate in the dividend on an as-converted basis in accordance with its terms. The total value of the cash dividend pay-out is expected to be around the region of $325 million.
Shares of common stock are occasionally available for purchase on the open market, or alternatively in privately negotiated transactions. This announcement by the board of directors of the company reflects their desire to return value to shareholders, as well as their confidence in the long-term growth prospects of the business, while also retaining enough capacity to chase potential strategic opportunities and to make investments in its programming, operations, and R&D initiatives.
The timing and amount of any shares bought back has not yet been revealed by Sirius, despite analysts expecting it for some time. Sirius said the repurchase would be based on the “evaluation of market conditions.”
Liberty Media Corp (Capital) (NASDAQ:LMCA) has been trying to take control of the company since acquiring a stake of roughly 40 percent back in 2009, in part of a loan deal that helped Sirius escape bankruptcy.
Regarding the news, Piper Jaffray analysts state, ‘ we believe investors will applaud this move, but we think the plan also highlights management’s confidence in current and future fundamentals, optimizes a balance sheet utilizing substantial free cash flow to service debt, and takes advantage of a recently closed revolving credit facility with attractive rates. We don’t see this derailing the eventual takeout of SIRI by LMCA (current ownership stake stands at 49.8%), but does remove the potentially negative optics of LMCA taking control and then pursuing an aggressive buyback. We remain bullish on SIRI shares and reiterate our $3.20 PT.’
Morgan Stanley called the move ‘ a step in the right direction: SIRI’s announced.’ They also note that while the timeframe to execute the announced $2B repurchase was not announced, they estimate current bond covenants limit SIRI’s total return of capital by YE13 to just over $2B, indicating a roughly 12-month timeframe. Removal of these restricted payment covenants would indicate a potentially accelerated timeline – the buyback program itself conveys little information, in our view.
In early trading, shares of Sirius XM Radio Inc (NASDAQ:SIRI) rose by six cents, an equivalent rise of two percent, up to $2.83 per share. Shares of Liberty Media rose by 1.6 percent, $1.69, up to $108.02.