Source: Broker China

According to the latest documents disclosed by the US Securities and Exchange Commission (SEC), Buffett is at the helm$Berkshire Hathaway-B (BRK.B.US)$/$Berkshire Hathaway-B (BRK.B.US)$8.9 million shares were purchased this week with a capital of 29 million dollars$Liberty SiriusXM Series C (LSXMK.US)$, and spent US$110 million to buy 3.8 million shares$Liberty SiriusXM Series A (LSXMA.US)$.

Liberty Sirius XM is a tracking stock of satellite broadcaster Sirius XM and owns Sirius$Sirius XM (SIRI.US)$Approximately 80% of the shares. However, it is worth noting that Buffett's aggressive increase in positions is in stark contrast to the bearish sentiment in the market. Sirius XM's stock price experienced sharp shorting this year, and the cumulative decline during the year was close to 29%.

So, what kind of trading opportunity did Buffett smell? Analysts said that the main logic behind Berkshire's bet is probably to take advantage of the transactional opportunities behind it. However, the “Berkshire Observer” judged that according to Buffett's trading style, this deal was very rare. It wasn't like Buffett's handwriting, but more like a trade led by his deputy Ted Wechler.

Buffett takes action

According to the latest documents released by the SEC, Berkshire Hathaway bought 8.9 million Liberty Sirius XM (LSXMA) Class C shares with a capital of 29 million US dollars and spent 110 million US dollars to buy 3.8 million Class A shares.

Sorting through previously disclosed documents, it was found that since 2024, Berkshire Hathaway has been increasing its holdings in the above targets, which is one of the company's most frequent transactions during the year.

Barron's reports that recent purchases suggest that Berkshire continues to be optimistic about the deal and is likely to continue to buy more tracking stocks.

What needs to be explained is that stock tracking is a mechanism in the US stock market, which enables large diversified enterprise groups to allow public investors to invest in a business with potential for growth while maintaining control over the company's structure and assets. The trading method for tracking stocks is no different from ordinary stocks.

Unlike ordinary stocks, tracking stocks break the indivisibility of stock assets under traditional securities theory, incorporate the idea of separating asset ownership from income rights, and link stock income rights to the operating performance of the parent company's business branch entities; at the same time, they also break through the “one share, one vote” style of corporate decision-making participation rights. Trackers may not have the right to participate in decision-making.

According to information, LSXMA, LSXMK, and LSXMB are all tracking shares issued by the Liberty Media Group for about 80% of the shares in the free media giant Sirius XM that it owns. After continuing to increase positions, Berkshire has increased its shareholding ratio to more than 20%.

It is worth noting that Buffett's aggressive increase in positions is in stark contrast to the bearish sentiment in the market. Sirius XM's stock price experienced sharp shorting this year, and the cumulative decline during the year was close to 29%.

Sirius XM provides subscription-based satellite broadcasting, online broadcasting and other services in the US and the UK through its subsidiary Sirius XM Holdings. The company went public on April 18, 2016, and offers music, sports, comedy, talk shows, news, and other channels through paid subscription services. According to the official website, the service fee for the “car+streaming media” subscription ranges from $13.99 to $23.99 per month. The company currently has 34 million paid subscribers.

The company has received quite a bit of attention in recent years as the market is skeptical about its future, which in turn has boosted a large number of bears' interest in the stock.

Up to now, Sirius XM's short holdings account for 27% of its tradable shares, which is a significant proportion, especially considering that the company's total market capitalization is as high as US$14.9 billion (approximately RMB 110 billion).

However, it is worth noting that the tracking stock LSXMA, which Berkshire bought in large numbers, showed a relatively stable trend. As of the latest closing, it had risen slightly by 3.34% during the year.

A very rare deal

Wall Street analysts say that the main logic behind Berkshire's bucking the trend is probably to take advantage of the transactional opportunities behind it.

On December 12, 2023, Sirius XM announced that it has decided to simplify the trading structure of tracking shares. Sirius XM tracking shares (LSXMA, LSXMK, and LSXMB) will merge with Sirius XM, and the new company will retain the Sirius XM brand and transaction code “SIRI” after the merger.

According to the announcement, current shareholders of Sirius XM will receive shares of Sirius at a ratio of 1:1, while holders of existing tracking shares will receive shares of the new company at a ratio of 1:8.4.

Based on the above share exchange ratio, the arbitrage space was once as high as 45%, but as Sirius XM's stock price continued to plummet, the arbitrage space narrowed somewhat.

As of the latest close, Sirius XM was priced at $3.88 per share and LSXMA was priced at $29.7. The merger is expected to be completed in the early third quarter of 2024. As a result, investors who bought tracking shares for $29.7 will get $32.6 worth of Sirius XM shares after about 3 months.

Once the merger is completed, Berkshire will be the main beneficiary, which is also a major factor in the company's current significant increase in holdings.

Through large purchases, Berkshire can further strengthen its investment and facilitate the successful completion of the merger.

In addition to Berkshire, well-known funds such as Millennium, Point72, and Baupster all participated in this arbitrage opportunity.

However, some analysts warned that as a transactional opportunity, there are also transactional risks: until shareholders tracking shares get the new company's shares, will they flock to sell, causing the stock price to collapse? The only room for arbitrage can quickly shrink or even lose money.

“Barron's” previously reported that “Berkshire observers” judged that according to Buffett's previous trading style, this deal seemed very special and rare. It wasn't like Buffett's handwriting, but more like a trade led by his deputy Ted Wechler.

The analysis points out that the reason why Berkshire bucked the trend and placed a big bet on Sirius XM released three signals: optimistic about the long-term growth of satellite broadcasting; agreed with the merger value of Free Media and Sirius XM; and intended to exert influence at a critical moment to guide the smooth completion of the merger.

Berkshire may think that the long-term value of the Sirius XM is undervalued. The Sirius XM has an absolute dominant position in the US car market, and most new cars are equipped with the Sirius XM system. As demand for autonomous driving and in-car entertainment grows, this advantage will become even more prominent.

editor/tolk