For those who have stuck with Sirius XM Radio Inc. (NASDAQ:SIRI), this past week has been quite an upward ride for you. Now that the stock has jumped significantly over the past three weeks, culminating with this week’s relative flurry of news, some investors might be wondering if it’s time to take the profit, or has this just been a sign of a revitalization by the company? Or, are investors just readying themselves for the “inevitable” purchase of more control of Sirius by Liberty Media Corporation (NASDAQ:LMCA)?
It is an interesting question. First, though, let’s recap what Sirius XM Radio Inc. (NASDAQ:SIRI) has encountered in recent days and weeks. First, the company announced that its new subscriptions in the second quarter of 2012 had increased 38 percent over the same period of 2011, which led the company to adjust its guidance up to 1.6 million subscriptions in 2012. However, Sirius was already reporting a million suscriptions, so some thought the actual number may well be more like 2 million. With a higher number means more revenue for the company, so some analysts raised the target price of the stock.
Then came July, usually one of the “softer” months for car sales. But reports indicated instead that this July would be one of the best months for new cars in five years. It was then expected that Sirius XM Radio Inc. (NASDAQ:SIRI) would have better subscription sales because of its inclusion with several car companies. After that came the the better-than-expected earnings report, plus the announcement of the launch of an “On Demand” service for subscribers.
Then, Sirius XM Radio Inc. (NASDAQ:SIRI) announced it was going to aggressively pay off some of its debt, which led to the issuance of $400 million in senior notes to institutional investors; but then the big news from Liberty Media Corporation (NASDAQ:LMCA) that it would spin off its Starz premium cable-television channel to raise more cash for Liberty to, as CEO Greg Maffei said, “permit us to better pursue our strategic objectives, including creating two currencies that could be used for acquisitions; and create significant liquidity at Liberty Media, which preserves all our options with respect to SiriusXM and Live Nation.”
The story growing about the plan by Liberty Media Corporation (NASDAQ:LMCA) in regards to Sirius XM Radio Inc. (NASDAQ:SIRI) is not entirely clear, even in Liberty headquarters. Liberty, which currently owns a 46-percent stake in Sirius, may not want to fully take over Sirius because doing so would void any tax credits Sirius may claim to offset past losses, which would mean a bigger tax bill for Liberty (the trigger on that is 80-percent ownership or greater). However, Liberty is considering taking enough control to have majority control of the board of directors, which would men raising its stake from 46 percent to at least 51 percent.
How Liberty Media Corporation (NASDAQ:LMCA) proceeds with Sirius XM Radio Inc. (NASDAQ:SIRI) will likely be the factor that determines share price for Sirius stock (and Liberty too, for that matter) in the coming weeks and months. It seems pretty certain Liberty will make a move; how soon and how assertive will be the key. The longer it waits and the less assertive the move, perhaps the more negatively affected both stocks will be. However, right now, talk of a $3 price for Sirius stock is being floated as a possibility by the end of 2012.