Sorry I haven't been available lately... still vey busy.
This is an interesting development, yet should have been expected. As we discussed at other times, should Sirius go through a fundamental change, they could be required to repurchase the 7% Convertibles at $1,000 (par) or exchange them for the base conversion, which was 533.3333 for each $1,000 Note... plus additional shares, which would be like a penalty. As of January 31, 2013 at a stock price of $3.14 - that penalty would be 37.74795 additional shares... for at total of 571.0812 shares per $1,000 Note.
Reading the Tender Offer, I note they are offering to repurchase at par, or exchanging each $1,000 for 581.3112 shares. That's an additional 10 shares, roughly. So instead of paying the 7% premium that could be forced on them -- they're offering a 9% premium. I also point out that the over-the-counter closing price of the 7% Notes was $1,841.23 per $1,000... so they're trading at 184.12. I remind everyone that Brandon swore up and down awhile back that these Notes "don't trade"... yet another instance he was wrong. Does he still have that website of his?
Anyhow, at that closing price divided by the current trading price of the stock... you would get approx 586 shares. They're offering 581 shares. See what I'm getting at? They're trying to retire these stupid Notes once and for all. They're offering more than what the holder could get, so that they don't hold on to them... and offering a price that is closer to the actual trading price of the Notes. They want these Notes gone, IMHO.
Will the holders exchange in this tender? I think so. You get 581.3112 shares for each $1,000... that's a conversion price of $1.72/share roughly. Based on the closing price of the stock yesterday of $3.23... that's an 87% premium (depending on what you paid of the $1,000 Note of course). Long time holders can convert and walk away with a nice tidy profit -- unless they hedged. These Notes mature in approx 22 months and they're still trading at a significant premium over the current stock price. At par, they should be trading at about 167, they're trading at 184... about 10% higher. They have about 12-13% left in interest left in them, if held to maturity... but you would forfeit the premium. What do you do? Hold and collect that interest? Or exchange and capture 9% now? Which could be more, depending on your base and/or if you hedged?
Nonetheless, assuming the holders all convert -- I have to note that it will introduce approximately 319.7 million shares in to the float (as opposed to the 293.3 million shares if converted at maturity). That's an additional 26.4 million shares of premium... a cost of about $83 million to us shareholders. I also have to note that this will also dilute Liberty's ownership down to about 48.37%... which I've been pointing out for some time could happen. Liberty needs to either add 118 million shares, or the company needs to buyback 236 million shares... or a combination of both - somewhere in the middle - for Liberty to keep 50.1% ownership.
There's some thoughts for now. I would not be surprised to see a good portion of these Notes take the tender offer... and to that I say, good riddance. It will mark the end of the toxic financing the company had... and a new beginning. Exciting times.
I am not sure this is a good thing in the short term, but it all depends how it plays out. I am sure that Liberty already has these notes all planned out. At the end of the day I think they are saving close to 40 million dollars in interest.