Why Berkshire Is Buying SIRI

It's basically OXY

There’s been a flurry of news recently surrounding the enthusiastic purchases of SIRI by Berkshire Hathaway. While many attribute these share purchases to Ted Weschler, I have reason to believe¹ that these purchases might actually be at least partially influenced by Buffett.

Why? Because a SIRI investment bears all the hallmarks of an investment in OXY — something which I’ve analyzed extensively before in the article below:

In my OXY article above, I explored what Buffett might have seen in SIRI which led to his acquiring of a massive 34% stake in it. While Occidental might be a juggernaut of an O&G firm following its Anadarko acquisition, there are really only a few needle-movers behind its valuation — as I’ve explored in painstaking detail.

The long and short of it is that as far as Buffett is concerned, he gets a pretty fixed x% yield on his OXY common stock investment at a given spot oil price. While Vicki Hollub ultimately decides how much in Berkshire preferreds OXY redeems, Buffett can offset those preferred stock redemptions with common stock purchases to maintain the fixed yield he receives via ordinary dividends.

With OXY’s commitment to return pretty much all of their FCF to common stockholders rather than reinvesting it into the ground (hint hint, Chevron), OXY pretty much represents a fixed yield investment to Buffett at a given spot oil price. And in light of Berkshire’s record $275B in cash & cash equivalents, this is especially attractive when you consider OXY’s capacity to absorb pretty much unlimited amounts of capital.

But how is all this related to SIRI?

For the uninitiated, SIRI’s common shares are also widely recognized to be somewhat of a fixed yield investment². They’re the largest satellite radio business in the United States, and it comes pre-packaged with nearly every car sold nationwide. Even in the streaming domain, they pretty much have half the paid subscribers as giants like Spotify and Apple Music:

source: Musicwatch

However, as you can imagine, that also means that their future subscriber growth is rather capped, which is where the notion of SIRI being a fixed yield investment comes from³.

As my extensive analysis into SIRI reveals, its common stock possesses a similar investment yield profile as OXY. Its satellite radio business is also capable of absorbing similarly “infinite” levels of capital, upon which it can generate said yield on. This effectively turns SIRI into an FCF equivalent of OXY, minus the dividends and oil price volatility. To an investor, they’re both pretty much identical from an investment/FCF yield perspective.

In conclusion, I’d wager that the main reason behind Berkshire’s recent outsized purchases of SIRI is because the investment yield of its common shares resembles that of OXY — something that Buffett is also extremely familiar with.

However, as you can imagine, there’s actually a lot more to it beneath the surface — e.g. what yield Buffett is getting out of OXY and SIRI, or how such gigantic businesses can be reduced to a fixed FCF investment profile.

Wanna find out more about either? Check out my OXY and SIRI articles below!

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1. rightly or wrongly

2. “Old SIRI” stock pays a dividend; however the dividend status of the newly restructured “New SIRI2” stock is still up in the air.

3. Even if SIRI stops paying dividends in the future, their flattish but stable FCF resembles the interest yield of a fixed income investment.