Liberty Media Move Won't Help Sirius XM Bulls
NEW YORK (TheStreet) -- It always amazes me to hear Sirius XM(SIRI) investors boast about the company's stock performance over the past three years.
They note the stock's rise from 5 cents to more than $2.00.
But they forget that the investors who were lucky or smart enough to buy the stock in 2009 when the company was on the verge of bankruptcy have long sold their shares and moved on to other opportunities.
The investors left in the stock incorrectly think that the market has priced shares too low.
They also forget that shares have surged 4,000% since 2009. Instead of viewing this as more than enough of a recovery, current investors suspect that "the man" is keeping the stock down.
In situations such as Sirius XM where fundamentals are often missing from the equation, "catalysts" end up driving the stock.
One day if it is not rising auto sales, it is declining gas prices. The next day it might be the jobs report, or declining short interest.
But the biggest "catalyst" over the past three years has been Liberty Media's(LMCA) intent to raise its stake in the company to more than the 40% it already owns.
Many have suggested that this event would send the shares soaring toward $3.00. They were proved wrong Tuesday morning.
On Tuesday, Liberty said it had entered into a forward-purchase contract giving it the right to increase its stake in Sirius XM to 45.2%.
The contract allows Liberty to purchase 302 million shares of Sirius XM at a forward price of $2.15 per share or $650 million.
So Liberty is saying it's not willing to pay more than $2.15 for the stock. That's long been my estimate of fair market value and the exact level at which I exited my position in Sirius XM in February.
Although the market has been saying for quite some time that it is willing to offer $2.50 and not a penny more, Liberty has now lowered that number by 14%.
Some investors thought that I was being insulting by suggesting a $2.50 cap on Sirius XM in the past. Now I wonder whether they would be glad to take that price and move on.