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Less Sirius is more for John Malone

As it turns out, Sirius XM Radio and Charter Communications don't really belong together.

John Malone's Liberty Media said Thursday night it had pulled its tender offer to buy the 47 percent of satellite-radio operator Sirius it didn't already own. It's also creating a new tracking stock called Liberty Broadband to house its 27 percent stake in Charter, along with a few other assets.

The moves effectively dismantle a machine designed to take over Time Warner Cable, which is far larger than Charter by most any measure. That ambition came to an end last month when TWC agreed to be sold for a whopping $45 billion to Comcast, owner of CNBC parent NBCUniversal.

(Read more: Who are the biggest losers in the Comcast-TWC merger?)

John Malone
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John Malone

The original plan went like this: Liberty Media would issue about $10 billion in new stock to purchase the remainder of Sirius XM, giving it free access to the satellite-radio company's big balance sheet. That would give Liberty the flexibility to help Charter fund an offer for TWC, which would otherwise probably be too large to acquire.

But with Time Warner Cable out of reach, it was time for Liberty Media to move on. To do that, it made sense to preserve some gunpowder by dropping the Sirius bid. After all, 53 percent already gives Liberty Media control and the move would have seriously diluted shareholders, including Malone.

Sirius was also trading at a slight premium to the tender price, meaning Liberty might have had to increase its bid to get the deal done.

The door remains open for Liberty Media to buy the rest of Sirius, but there's no hurry. As Maxim Group analyst John Tinker pointed out, Sirius could simply ramp up its buyback program, which would drive Liberty's stake higher without forcing it to pay up.

Indeed, a renewed buyback looks likely, given Sirius already had plans to buy back stock when Liberty announced the tender in January. That may explain why Sirius shares traded up 3 percent Friday after the offer was dropped.

(Read more: Liberty Media drops offer for SiriusXM)

Malone has a history of waiting patiently rather than overpaying for an asset he wants. Four years ago, investors bid shares of entertainment company Live Nation well above Malone's bid, only to see the stock fall sharply after the company posted weak quarterly results.

There was also no reason to keep Sirius and Charter under the same roof, given they exist in different industries. Sirius probably fits well alongside other Liberty Media assets like its 26 percent stake in Live Nation, which has businesses like concert promotion and ticketing.

With Charter housed in Liberty Broadband, it's probably easier to raise money. In fact, Liberty Broadband plans a rights offering that will increase its share count by up to 20 percent when the tracking stock is created. That could help Liberty Broadband pursue other cable assets, such as the subscribers Comcast plans to divest as part of the Time Warner deal.

With Liberty's tender offer off the table and a good chance of buybacks at Sirius, investors in both companies are looking better off.

—By CNBC's John Jannarone. Follow John on Twitter @jannarone.

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