Investors looking for a lucrative opportunity in the stock market should consider buying shares of Liberty SiriusXM (LSXMA, LSXMK, LSXMB) as the company merges with Sirius XM Holdings Inc. (SIRI). This long-anticipated merger is expected to result in approximately 50% near-term upside for Liberty SiriusXM shareholders.
The merger between Liberty SiriusXM and Sirius XM has been in the works for several months and is finally coming to fruition. Under the terms of the agreement, Liberty SiriusXM shareholders will receive about 8.4 shares of the new SiriusXM, giving them ownership of approximately 81% of the merged company. Meanwhile, current minority shareholders of Sirius XM Holdings will retain the remaining 19%.
While the merger is expected to be tax-free and faces no significant obstacles to approval, it is worth noting that Liberty already owns 84% of SiriusXM and effectively controls the company. Therefore, the outcome of the shareholder vote is almost certain, with Liberty Media’s shareholders having the final say.
Despite the positive outlook for the merger, there remains a significant discrepancy between the intrinsic value of Liberty SiriusXM tracking stocks and their trading price. Currently, the trackers trade at a price significantly lower than their potential value. This suggests that the market may not fully appreciate the potential upside of the merged company.
The market’s skepticism towards Sirius XM’s stock valuation may be attributed to its history of volatility and low liquidity. However, this perception is likely unfounded, and the current discount in Liberty SiriusXM’s stock presents a compelling opportunity for value investors.
Each share of the Liberty trackers entitles shareholders to a claim on the profits of 8.4 shares of the new SiriusXM. With the expectation of generating $1.5 billion in free cash flow in the coming years, the Liberty SiriusXM trackers offer an attractive investment proposition. Even if the free cash flow stagnates at the current level, the trackers still yield around 11%, making them an appealing option for long-term investors.
It is important to acknowledge that owning volatile stocks like Sirius XM requires a tolerance for short-term fluctuations. However, the potential returns are promising. It is estimated that the new SiriusXM shares will settle around a more common free cash flow yield of 7%, resulting in a significant increase in stock value.
The risks associated with this investment are minimal, as even at the recent multi-year lows of Sirius XM’s stock price, the underlying value of the Liberty trackers would still be higher than the current trading price. Additionally, SiriusXM’s ownership of a substantial portion of the U.S. car market positions it as an attractive acquisition target for tech companies looking to expand into the automotive industry.
In conclusion, the merger between Liberty SiriusXM and Sirius XM presents a lucrative opportunity for investors. With the potential for a 50-60% return within a year and minimal downside risks, value investors should seriously consider buying Liberty SiriusXM shares. As the market starts to recognize the true value of the merged company, investors who can stomach the volatility stand to be richly rewarded.
