Liberty Media Corp. (LMCA), billionaire John Malone’s holding company, abandoned its bid for full control of Sirius XM Holdings Inc. and laid out a plan to help fund Charter Communications Inc. (CHTR)’s expansion.
Rights to the tracking stock, for a unit to be called Liberty Broadband, will be sold to raise money for investments in new business opportunities, the company said yesterday in a statement. Liberty Broadband will include the company’s 25 percent stake in Charter, the cable provider that made an unsuccessful proposal to buy Time Warner Cable Inc. this year.
Liberty, which already owns 53 percent of Sirius, had offered earlier this year to buy the satellite-radio carrier’s remaining shares. The deal could have given Liberty cash flow and additional assets to borrow against to help fund Charter’s bid for Time Warner Cable. Now that Time Warner Cable has agreed to be bought by Comcast Corp. (CMCSA), Liberty is taking another approach to fund cable deals.
“We remain very excited about our investments in the cable sector and Charter Communications,” Liberty Chairman Malone said in the statement. “The creation of the Liberty Broadband tracking stock and the concurrent rights offering will provide us greater flexibility to, among other things, support Charter in its expansion efforts.”
Malone’s latest move, if combined with an intercompany loan, may create $3.15 billion in liquidity for new deals, Matthew Harrigan, an analyst at Wunderlich Securities Inc., estimated in a research note today.
Dropping the bid for Sirius in favor of the new stock structure “affords alternative latitude for cable deals, sans an excessive premium for Sirius XM or doubling down on satellite radio exposure,” Harrigan wrote.
Malone has pushed for mergers in the cable industry, arguing that companies can gain greater leverage in negotiations with TV networks and more purchasing power for expenses such as marketing. He acquired his Charter stake last year with an eye toward making further investments in the industry, only to be thwarted by Comcast’s surprise agreement to buy Time Warner Cable for $45.2 billion.
Since Comcast’s proposal was announced, Comcast shares have fallen 8.7 percent through yesterday, reducing the value of the all-stock deal to about $145 a share, down from $158.82. Charter’s stock-and-cash offer was originally valued at $132.50 a share.
If Comcast’s stock price and value of the takeover offer continue to deteriorate, Liberty could now have “more wildcard liquidity” for a counterbid, Harrigan wrote.
Liberty shares rose 7.2 percent to $135.25 at the close in New York, while Time Warner Cable added less than 1 percent to $138.02.
Charter is considering buying some of the 3 million subscribers that Comcast plans to sell following the acquisition of Time Warner Cable, according to a person familiar with the matter.
Liberty didn’t specify how much it aims to raise and whether it might seek acquisitions or a new bid for Time Warner Cable. Courtnee Ulrich, a spokeswoman, didn’t return a phone message.
Sirius’s board had formed a committee of directors to consider Liberty’s offer, originally valued at $3.68 a share. Any deal would have been subject to approval by those board members, as well as a majority of the New York-based company’s shareholders.
“Depending on market conditions, we look forward to further discussions with the Sirius XM special committee,” Liberty Chief Executive Officer Greg Maffei said in the statement.
The satellite-radio company was sued in January by two shareholders contending that directors violated their duties to get the best price in the buyout by parent Liberty. Sirius shares closed yesterday at $3.37 before Liberty announced it would drop the bid. The stock rose 2.1 percent to $3.44 today.
Sirius announced today that it will resume its share buyback program. In February, the company said it had more than $2.2 billion remaining under its repurchase authorization.
The separate stocks will allow shareholders to split into two groups: “those who covet Liberty-led cable consolidation, and those who prefer Sirius-fueled levered equity share repurchases,” Barton Crockett, an analyst at FBR & Co., wrote in a report today.
In addition to the Charter stake, the Liberty Broadband tracking stock will include Liberty’s own stake in Time Warner Cable and a wholly owned geographic-location technology company, TruePosition Inc. Liberty held Time Warner Cable stock worth $320 million at the end of last year, according to a filing.
A separate tracking stock, Liberty Media, will include all the company’s other assets, such as its Sirius stake.
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