SIRI's Arbitrage Opportunity

One of Warren Buffett's $Berkshire Hathaway(BRK.A)$ $Berkshire Hathaway(BRK.B)$ positions that has underperformed one by a small percentage of the portfolio, but still has become the top shareholder through constant purchases, is the only media company $Liberty Media Series A(LSXMA)$

Liberty Media is a conglomerate that in turn has split its different businesses and issued separate stocks.If an investor is bullish on only one of these businesses, he or she can invest in a separate category without being exposed to the group company.

$Sirius XM(SIRI)$ s one of Liberty's spun-off tickets, an exclusive satellite radio system broadcasting subscribed music, sports, entertainment, funny, talk, news, traffic and weather channels.Liberty owns about 83% of SiriusXM.Siri's corebusiness isn't bad, with annual revenues of up to $9 billion in 2023, profits of over $1 billion, and a fairly generous dividend, more in line with Warren Buffett's investment logic.But unfortunately, in the era of $Netflix(NFLX)$ and other streaming media is in the ascendancy, traditional media is not favored, so the share price does not perform well.

And there is a long-standing premium between SIRI and LSXM.

So Buffett, as a major shareholder, also supports a merger between the company's two tickets

1. Merger structure

   Liberty SiriusXM Tracking Stock Group (LSXM), a division of Liberty Media, will merge with SiriusXM to form a new public company that will continue to operate under the SiriusXM name and brand.The new company will reissue a single series of common shares under the symbol "SIRI."

2. Ownership and exchange ratios

• Former LSXM shareholders $ Liberty Media Corporation Series A (LSXMA)$ $ $ Liberty Media Corporation Series C (LSXMK)$ are expected to own approximately 81% of SIRI, while SIRI minority shareholders willown the remaining 19%.

• LSXM shareholders will receive shares of New SiriusXM based on the exchange ratio, estimates that for every share of LSXM held, 8.4 shares of New SiriusXM will be received.

3. Financial Considerations

• The transaction involves Liberty's separation of LSXM through a spin-off, with the new entity (SplitCo) retaining shares of SiriusXM and approximately $1.7 billion of projected net liabilities.The net liabilities include LSXM debt, transaction costs, litigation-related costs and other corporate realignment costs.

4. Strategic Benefits

• The merger is intended to eliminate the tracking stock structure, improve liquidity and allow former LSXM shareholders to participate directly in the performance of SiriusXM Telecommunications, Inc.

Based on the July 10 closing price of

LSMXA was priced at $22.68 and SIRI at $3.51, equating to a 30% premium for LSMXA.

This merger is expected to close during 2024, and with good things likely in the near future, volatility in the market has increased.As LSMX is not actively traded, investors preferred SIRI, and options trading in SIRI has zoomed quite a bit in the last two weeks.