Karmazin Speaks - Will The Street Listen?
With the economy being what it is, a feel good economic story is hard to digest. It is a challenge faced by many companies, as they try to hold the line, maintain a positive outlook, and guide the street to be understanding of numbers that are better than should be expected, but not as good as years past.
Sirius XM CEO Mel Karmazin spoke with Reuters today, and much of what he outlined should be seen as a positive for the company. However, the street needs more than good intentions and words, and even when a company delivers on their guidance, as Sirius XM did in Q3, people still look at anything with a jaded eye.
Karmazin made several statements, which in normal economic conditions would be enough to get some traction in the equity. Today, this news was simply absorbed with a shrug of the shoulders, and a show me mentality.
POSITIVE POINT #1
Karmazin sees double digit revenue growth on a percentage basis in Q4. Wonderful news that seems to have fallen on deaf ears. In a time when other media companies are seeing double digit declines, Sirius XM Radio is still growing, yet no one seems to care that Sirius XM’s revenue is a polar opposite to all of the bad news out there. Perhaps it is too difficult to grasp that there are still companies that are in a growth trend at this point in time.
POSITIVE POINT #2
Karmazin is confident the company can refinance debt due in 2009. Perhaps this issue is the overshadow that simply refuses to go away. Karmazin has been expressing confidence with this subject for a while, and this issue is where a “show-me” attitude is likely warranted. That being said, I have always felt that the company will indeed be able to get the debt issue resolved. I would have hoped that it would have been done by now, but still, it should get done. For the equity to see improvement, an answer on the debt needs resolution.
POSITIVE POINT #3
Karmazin has no immediate plans to cut its subscription prices, even in the midst of the economic recession. At a time when prices are being slashed left and right, you would think news that they will be able to hold the line would be news that is well received. Instead, the street barely reacts. This is substantial news. This means that churn is stable. It means that new subscriber numbers are satisfying the business model. It means that revenue can continue to grow. Perhaps the lack of a profit from Sirius XM tempers this news a bit, but with the continued positive trend shouldn’t the street give this a bit more weight?
POSITIVE POINT #4
“We did exactly what we wanted to do for Black Friday, which is not great news because we didn’t have high expectations,” Karmazin said, referring to the Friday after Thanksgiving, which kicks off the holiday shopping season.
While humble sales are not a positive point, the fact that the company was able to meet their expectations is stable. Had sales been shy of low expectations, the worry lines would rightfully appear. With the news being that holiday shoppers are being cautious, meeting your expectations is a small victory unto itself. On a side note, meeting those expectations did not come without an expense. Many retail radio’s came with free service for three months. Thus, you have a new subscriber, but n o revenue just yet.
POSITIVE POINT #5
Perhaps the biggest bit of news from the Reuters Media Summit was Karmazin’s statement that Sirius XM Radio is not for sale. “We don’t feel that we need to be acquired,” he said. “You should assume the company is not for sale.”
With stock prices at low levels, one distinct worry many may have is that the company sells itself. Investors who believe in the long term outlook of the concept of satellite radio would potentially be looking at a situation where they would not participate in the success of the company in the years ahead. Of course, there is no guarantee that the company will be an overwhelming printing press of cash, given that it has at times been a printing press of shares. However, those that have maintained faith in the concept should be able to reap the reward should it come.
In the end, it boils down to what transpires over the next few months. Will Karmazin’s outlook be realized? Will the street finally be able to digest good news? Will satellite radio be successful in refinancing their debt? There are a few questions that seem to be keeping many hesitant.
[Reuters]
Position: Long Sirius XM
max…..
forgive me for being blunt, but there is far more happening with this equity than the pps. Most stocks have taken a beating and Sirius is not exclusive in that department.
You don’t want to believe Mel, that is fine. Look at the numbers. That is something you need to consider when making your unvestment decision. If you don’t believe in management, you have a chance to vote about it on December 18th. If you do not like the direction of the company, perhaps you should consider not being invested in it.
Thus, once again, you are avoiding answering questions. This is odd behavior. we still do not know whether you have a clear understanding of mels compensation, and now we do not know how you feel about the metrics. all we know is your disdain for Mel.
Am I happy with the PPS? I am actually indifferent to it. I understand that my whole portfolio is taking a hit. With regard to Sirius, I made my play in it long ago. The shares I hold are not going to change my lifestyle no matter what happens. Perhaps that gives me the latitude to be indifferent.
On December 18th, the Board will go in as suggested in the proxy, the additional shares will be approved, and the reverse split autorization will be approved. If you are against those positions, you should prepare yourself for these things happening.
Why do I say all of these measures will pass?
1. The board votes all shares that did not fill out a proxy vote.
2. The company needs latitude in trying to refinance. Getting delisted is not an option. If a reverse split is needed, most shareholders, and the board will approve giving this latitude. This is not a Mel thing. If Mel resigned tomorrow, this measure would still be on the table.
3. Having shares authorized, and adding them to the float are differing matters. No oine like dilution, but if the isswue becomes BK or dilution, dilution will win…..unless they do not have the authorized shares to do it.
John,
You seem to think that I am arguing a point regarding the merger and the Wisdom of the decision. I am simply stating an an analysis of that is yet to be performed. What you and I have agreed on in the past, is that it will take at least 2 full quarters to see the merged metrics and probably 4 or 5 quarters to establish the new company’s actual performance post merge. As you know it will take 5 quarters of merged performance to get the first YOY comparison of the metrics and other important data points that Tyler outlined for Max above. When we make it to 2010 (see I can be positive by saying When instead of If), the YOY comps should be favorable.
On the debt, I have recently updated my understanding since our discussions with Homer, to include information in the recently updated prospectus for the Lent Shares and 7% converts, the “ugly deal”. Their is a very good Debt Chart based on guarantor withing this release, breaking down debt secured with Xm holdings asset s vs debt secured by Sirius Xm Radio Parent assets. A read of the Risks Section are now more specific to the merged entities than previously released, especially regarding Xm’s debt.
In support of my position on Melvin’s compensation and/or possible bonus(es), more fuel for the fire… or firing, if you like. Nice blog following the story as well.
HEADLINES
NY’s Cuomo: Merrill’s $10 mln bonus for Thain ‘unjustified’
SAN FRANCISCO (MarketWatch) — New York Attorney General Andrew Cuomo told the board of Merrill Lynch & Co.on Monday that a reported bonus of $10 million for Chief Executive John Thain “appears unjustified.” Cuomo said in a letter to the board that Merrill Lynch has lost more than $11 billion over the year and that “the performance of Merrill’s top executives throughout Merrill’s abysmal year in no way justifies significant bonuses for its top executives, including the CEO.”
link: http://www.marketwatch.com/new.....E2C2DCC%7D
Seems to be the coming trend. In the UK, I believe that its call “say about pay” legislation whereby shareholders increasingly have a say about the negotiated compensation packages awarded to CEO’s by the company’s B.O.D.
Attaching performance measures to compensation of top executives just may be what the economy is in need of. A slight shift of the Risk from shareholders to CEO’s seems healthy, IMO.
Coming to a Satellite Radio provider near you… 12/18/2008
max….
With all due respevt you do not seem to comprehend Mels package.
His base pay is $1,250,000
His annual bonuses are discressionary
The vast majority of his compensation is in options. Those optins are worthless because of where the price of the stock is.
Look at it this way. If we assume an average bonus of $3,500,000, and an annual salary of $1,250,000. His cash income would be just under $24,000,000 for five years. This is less than $5,000,000 per year for the CEO of a major media company.
His other “compensation” is in options. 30,000,000 of them at a cost of $4.74 each. That is $142,000,000 in whta you want to call compensation, but what is in reality Mel buying those shares.
So, in your understanding of compensation, Mels total compensation would be $166,000,000 over five years. Thus, 85% of his “pay” is based on the stock price. What more are you looking for?
Even if the stock price were to hit $4.74, Mel would only have broken even. He will have paid $4.74 to get stock shares worth $4.74. Thus he would not see profit until the stock went above. Lets assume it went to $5.74. His profit on the shares would be $30,000,000.
Again, I would suggest that you have a better grasp of the compensation package prior to having thyis conversation.
Thains pay at Merrill was a minimum of $70,000,000 in 2007 (the year he started)
“Mr. Thain’s initial pay includes a salary of $750,000 and an unspecified bonus; restricted stock worth $28 million at current market values; and a three-tier grant of 1.8 million stock options worth about $20 million, by conservative valuation assumptions.The big option grant is intended to encourage him to bolster Merrill’s share price, while shielding him from the risk that the job is a bad fit. When he takes over in December, his first allotment — of 600,000 stock options — will vest over two years. The second portion vests only if Merrill’s share price rises $20 from its price on his start date. The third set of options vests if Merrill stock climbs $40 a share.
Though it will be a formidable challenge to realize all three tiers, Mr. Thain could be paid as much as $120 million if he hits all the performance targets.”
Mel has not received a 2008 bonus as yet.
max….
look at this article on Thains pay.
This guy was critical of it last year saying the targets were not high enough:
“MER will be up $20 and $40, even if Thain has sat in his office twiddling his thumbs (apparently he isn’t a golfer). If things turn even uglier, so will MER. Anyone thinking that Thain’s pending decisions will materially impact whatever transpires in “the great credit market resolution” should email me whatever they are smoking.”
Look at the chart:
http://finance.yahoo.com/echar.....R;range=1y
Tyler
Just took a gander at both Merrill and Sirius ONE YEAR Chart.
In 2007, on or around this date, Merrill, a Financial Company acquired by BOA, was trading at $21.50, today $14.91 or 69% of ‘07 value
In 2007, on or around this date, Sirius was trading at $3.50, today, around $.15 (fifteen cents) or a mere 4% of its last year value.
Thain is being thrashed for a 30% drop in his companies performance year over year.
Karmazin, Melvin to those of you who prefer the more personal touch, took his company down 96% during the same timeframe.
Where is the outrage?
Thain is gone, Karmazin is still lurking, and asking for dilution and reverse splits along with a whole host of prerequisites, I would imagine.
The looking glass looking different now?
max…..
Acxtual numbers vs. expectations are part of the equation.
Assets held are another.
Max, you hate Mel. We get it.
You don’t want to acknowledge any metrics. We get it.
You want Mel fired. We get it.
Fire Mel, and replace him with who?
Your solution is not a solution. It is just bringing about another problem.
On December 18, the proxy measures will all pass. If I were you, I would get in tune with that and get your strategy together. Whining and complaining will get you nowhere. If you are that distressed, I would suggest that you reconsider your position in the company now.
Max: The fact that Thain’s company during that same time lost tens of BILLIONS of dollars and all metrics looked like crap, while Mel’s company lost substantially less than that, while improving every other number (including the ammount lost) does not factor into your argument at all does it?
The fact is, as you have stated, you care about nothing more than the stock price, and there is absolutely nothing that anyone can do or say to change your mind.
I get it.
Lets go back to Tyler’s question:
Fire Mel, and replace him with who?
Do you think that if anyone else in the world was put in charge or Sirius XM, it would raise the PPS and you would feel confident that they could run the company successfully? Start naming names… perhaps you could suggest this to the BOD.
Newman.
Anyone can run a company better than a CEO who reduces the value in one year by 96%. Bring in the chimpanzes.
The BOD is probably in Melvin’s back pocket, unfortunately… that’s business.