Liberty Media, the media conglomerate controlled by billionaire John Malone, has increased its ownership stake in Sirius XM Holdings, the satellite radio company, to over 80% in a tax-free exchange with Berkshire Hathaway, the investment firm led by Warren Buffett.
Liberty Media swaps tracker stock for Sirius XM shares
Liberty Media announced on Wednesday that it had swapped 5.3 million shares of its Liberty SiriusXM Group (LSXMA) tracker stock for 43.7 million shares of Sirius XM (SIRI) common stock, taking its ownership in Sirius XM to approximately 80.2%.1
A tracker stock is a type of equity that reflects the performance of a specific business unit within a larger company, but does not give the holder any ownership or voting rights in the company. Liberty Media has three tracker stocks: Liberty SiriusXM Group, which tracks its interest in Sirius XM; Liberty Braves Group, which tracks its interest in the Atlanta Braves baseball team; and Formula One Group, which tracks its interest in the Formula One racing circuit.2
Liberty Media said that the exchange was tax-free for both parties and that it would retire the 5.3 million shares of Liberty SiriusXM Group that it received from Berkshire Hathaway. The deal reduced the number of outstanding shares of Liberty SiriusXM Group by about 2.4%.1
Berkshire Hathaway increases its stake in Liberty SiriusXM Group
Berkshire Hathaway, which is known for its value investing strategy and long-term holdings, had been a major shareholder of Sirius XM since 2016, when it bought about 166 million shares of the company for about $745 million.3 At the time, Sirius XM was trading at around $4.50 per share. As of Thursday, Sirius XM was trading at around $6.20 per share, giving Berkshire Hathaway a gain of about 38% on its investment.
By swapping its Sirius XM shares for Liberty SiriusXM Group shares, Berkshire Hathaway increased its stake in the tracker stock from 14.9 million shares to 20.2 million shares, or about 8.7% of the total outstanding shares. Berkshire Hathaway also gained exposure to other assets that Liberty Media owns through the Liberty SiriusXM Group, such as a 33% stake in Live Nation Entertainment, the live events company, and a 71% stake in Sirius XM Canada, the Canadian subsidiary of Sirius XM.
Benefits of the deal for both parties
The deal between Liberty Media and Berkshire Hathaway could provide significant financial and tax benefits for both parties. For Liberty Media, the deal increased its ownership and control of Sirius XM, which is its largest and most profitable asset. Sirius XM had over 34.5 million subscribers and generated over $8.2 billion in revenue and $2.1 billion in net income in 2022. Liberty Media also avoided paying taxes on the exchange, as it did not recognize any gain or loss on the transaction.1
For Berkshire Hathaway, the deal allowed it to diversify its portfolio and gain exposure to other businesses that Liberty Media owns or invests in. Berkshire Hathaway also avoided paying taxes on the exchange, as it did not recognize any gain or loss on the transaction.1 Moreover, Berkshire Hathaway could benefit from the potential upside of Liberty SiriusXM Group, which trades at a discount to the value of its underlying assets. As of Thursday, Liberty SiriusXM Group had a market capitalization of about $15.6 billion, while its stake in Sirius XM alone was worth about $19.8 billion.
