SiriusXM will merge its publicly traded stock with a Liberty Media tracking stock to create a single, streamlined public stock, the company announced Tuesday (Dec. 12). The deal — a piece of financial engineering rather than an overhaul of the companies’ organizations — will create a new public company that continues to use the SiriusXM brand.
SiriusXM and Liberty Media laid out numerous benefits of the transaction: a simplified equity structure; enhanced trading liquidity; a larger float (a larger percentage of outstanding shares on the market); the elimination of a multi-class stock structure; greater strategic flexibility; and greater potential for inclusion in stock indexes.
Investors have had two ways of investing in SiriusXM: the SiriusXM stock that trades on the Nasdaq and Liberty SiriusXM Group (LXSM), a “tracking stock” created by majority shareholder Liberty Media. (A tracking stock is a stock that depends on the financial performance of a specific business unit or division.) LXSM accounts for 84% of SiriusXM’s 3.84 billion outstanding shares; SiriusXM’s public shareholders own the remaining 16%.
On Sept. 26, with SiriusXM’s typically stable stock price down 26% year to date, Liberty Media announced a proposal to merge the two stocks. As detailed Tuesday, Liberty will separate Liberty SiriusXM Group by creating “SplitCo,” which will holds all LXSM assets and liabilities. SplitCo will immediately acquire SiriusXM in an all-stock transaction to form “New SiriusXM” with one class of common stock. New SiriusXM is expected to continue to be traded on the Nasdaq under the familiar stock ticker SIRI.
Former LXSM shareholders will get 8.4 shares in New SiriusXM for each share of LXSM and will own 81% of the post-merger company’s outstanding shares. Former SiriusXM shareholders will own the remaining 19%.
The new company will have a leverage ratio of 3.9 at close and a target leverage ratio of 3.0 (net debt to earnings before taxes, interest, depreciation and amortization). New SiriusXM has secured financing commitments up to $1.1 billion to fund the refinancing of a LXSM loan and an exchangeable bond. The companies told investors share buybacks will take less priority until that target leverage is reached.
“This combination will create value for all stockholders by eliminating the tracking stock structure, enhancing liquidity and allowing former LSXM stockholders to participate directly in the ongoing performance of SiriusXM,” said Greg Maffei, Liberty president/CEO, in a statement. “SiriusXM commands the largest paid share-of-ear in the car and has proven itself as an incredibly successful and profitable business. We are confident SiriusXM will continue to create value by building on its resilient business model to execute its strategic initiatives.”
“We are pleased that the Special Committee of our Board of Directors has reached this agreement with Liberty Media, which will allow SiriusXM to enter its next phase of value creation,” added Jennifer Witz, CEO of SiriusXM. “In a highly fragmented audio entertainment industry, SiriusXM has differentiated itself as the leading audio entertainment provider by creating an experience centered on our high-quality, premium, human curated radio that is more relevant than ever. In doing so, we have built a profitable business that is poised for continued success.”
The deal is expected to close in the third quarter of 2024 and is subject to regulatory approvals and a majority vote of Liberty SiriusXM Group shareholders. The transaction has been approved by Liberty Media’s board, a SiriusXM special committee and SiriusXM’s board of directors. The deal will be tax-free to Liberty SiriusXM Group and SiriusXM shareholders, except for cash received instead of fractional shares.
SiriusXM’s stock price has dramatically improved since September thanks to news of the merger plan as well as a 10% increase in its dividend in October. Shares of SiriusXM rose 5.6% to $5.30 following Tuesday’s announcement, reducing its year-to-date deficit to 9.2%.