The share price of Sirius XM (NSDQ: SIRI) doubled in early trading today, on the announcement that Liberty Media (NSDQ: LINTA) would be investing $530 million to help the satellite radio operator avoid bankruptcy. The stock was up to $0.20 from $0.10 within the first hour of trading.
The surge in share price suggests that SIRI shareholders were as surprised by today’s announcement as most analysts were. The conventional wisdom was that Liberty wouldn’t do the deal, and that bankruptcy or a less-than-ideal agreement with EchoStar (NSDQ: SATS) CEO Charlie Ergen was imminent.
SIRI shareholders will be significantly diluted once preferred stock issued to Liberty as part of the deal is converted into common equity totaling 40 percent of shares outstanding. But being diluted by 40 percent is better than being wiped out in bankruptcy.
Update: SIRI closed the day at $0.16 on heavy volume, up 52 percent after going as high as $0.23.