FORTUNE — Sirius XM shareholders appear to think they have a bigger hit on their hands than they do.
On Friday, John Malone’s Liberty Media (LMCA) offered to buy the 48% of the satellite company it doesn’t already own for $10 billion. But investors think that’s too cheap.
Leon Cooperman, whose Omega hedge fund owns just over 1% of Sirius’s shares, says the deal undervalues the company. Ralph Nader, who says he owns shares in Sirius (SIRI), suggested this was a deal corporate raider Carl Icahn should consider busting up. The fact that Malone has structured the deal as a complicated stock swap may be strengthening the argument that current Sirius shareholders are getting a raw deal.
In fact, they might not be.
Critics of the deal argue that Malone’s deal works out to just $3.68 a share, only 3% more than where the stock was trading just before the deal was announced. Acquirers usually pay a bigger premium. But Sirius’s stock is already up 150% over the last three years. So how much more should Malone be paying?
Sirius generated an estimated $1.2 billion in cash flow. The Liberty deal values the whole company at about $21 billion. That means Malone is paying 17.5 times cash flow. That seems like a lot. Sirius doesn’t have any exact competitors. But shares of Comcast (CMCSA), Time Warner Cable (TWC), and DirectTV (DTV) all trade for around seven times cash flow.
The cash flow of the cable operators seems more reliable. Sirius has a lot of deals with car manufacturers, but still just less than half of all new car buyers become users. There are far more used cars sold than new cars. And Sirius has had a much harder time penetrating that market. What’s more, auto makers are racing to get their cars connected to the Internet. When they do, Sirius will have to compete with streaming radio services Pandora (P) and Spotify, which may be stiffer competition than just AM/FM.
The real prize in the deal could be Sirius’s $7.7 billion in tax loss credits. Based on that alone, the deal feels like a steal. And it may be, but only for Malone. Typically, tax credits disappear when a company is acquired — that way, the company’s losses don’t make it more valuable — but because Malone already owns more than half of the company and is structuring the deal as a reorganization, Liberty gets to keep the credits. But no other acquirer would.
The tax credits are valuable to Sirius, but Sirius only makes about $500 million before taxes a year, vs. $2 billion for Liberty. So the combined entity will be able to take advantage of the tax losses much more quickly.
Indeed, the market seems to suggest that Malone’s deal is close to fair. Sirius’s shares on Tuesday were trading at $3.86, which means investors are betting that Malone may indeed be underpaying for Sirius, but not by much. Even in the age of activist shareholders, not every deal is a bad one.