Source: Finance Association
Stock god Buffett recently went against Wall Street, buying shares of a company whose stock price has been falling continuously in just one week.
According to the latest SEC documents,$Berkshire Hathaway-A (BRK.A.US)$/$Berkshire Hathaway-B (BRK.B.US)$Recently, a total of 368 million US dollars was invested to buy tracking shares of Sirius XM, a satellite broadcasting company. Of this, $258 million was purchased$Liberty SiriusXM Series C (LSXMK.US)$Class C shares, bought for $110 million$Liberty SiriusXM Series A (LSXMA.US)$Class A shares. Class C shares do not have voting rights, while Class A shares have voting rights.
What is very different from Berkshire's opinion is that Sirius XM stock has been falling continuously since this year, and the cumulative decline during the year is approaching 30%, which is a sniper target for various bears.
This bolder operation is believed by some analysts not to be Buffett's handwriting, but to his deputy, Ted Weschler. However, it still attracted the attention of many market participants and speculated on the intentions of stock giants in this move from various aspects. Is arbitrage still good for the long term?
Berkshire's increase in Sirius XM shares actually involved several stocks. At the end of last year, Liberty Media reached a final agreement with Sirius XM. Liberty will split a subsidiary and merge with Sirius XM to establish a new listed company and continue to operate under the Sirius XM name and brand. The stock code is Siri.
Liberty SiriusXM, a subsidiary of Liberty, is a tracking stock of Siri and holds about 81% of Siri's shares and a net debt of about 1.7 billion US dollars. The minority shareholders of the former Sirius XM will own the remaining 19% of the shares. Tracking stocks are stocks that track the performance of a specific business unit or a specific subsidiary within a company.
LSXM, on the other hand, is a collective term for three stocks (Class A LSXMA, Class B LSXMB, and Class C LSXMK).
Furthermore, relevant documents show that as of June 30, 2024, the adjusted conversion ratio for fully diluted shares of LSXM for Sirius XM (SIRI) was approximately 1:8.4. At the close of trading on Thursday, LSXM Class A shares were $29.7 per share, while Sirius XM was $3.88 per share. In simple conversion, after three months, each LSXM share held by Buffett will receive $32.6 worth of SIRI shares, which means that the stocks Berkshire bought this week already have more than 10% arbitrage space.
Of course, since the current month is only 3 months, there is still great uncertainty about future stock price fluctuations, so arbitrage is just a speculation.
Another view of the market is that the future prospects of Sirius XM's business are worth betting on. Sirius XM mainly works on in-vehicle broadcasts and has an absolute dominant position in the US automotive market. Most new cars are equipped with Sirius SM systems. And with the gradual increase in demand for autonomous driving and in-vehicle entertainment, Sirius SM's future revenue is clearly impressive.
Another reason is that after the merger of Liberty and Sirius XM, the structures of both companies will be further simplified, and new collaborative growth points will be found through scale effects. This is definitely a good thing for Berkshire, the majority shareholder that already holds more than 20% of SIRI's shares.
Meanwhile, Berkshire's high-profile entry into Sirius XM is also sending a signal to the market: they are optimistic about the merger between Liberty and Sirius XM, thus eliminating the negative influence that bears have continuously exerted on the company since this year.
Editor/jayden