Activist Ralph Nader was very vocal right out of the gate when Liberty Media made its intentions to take over SiriusXM public. In fact, it seemed like only a matter of hours went by when Nader called the offer ludicrous. This begs the question of whether Nader actually took the time to really study the offer, or instead dismissed it as a matter of course because perhaps he is too passionate about his investment. Today, Nader is on a letter writing campaign of sorts, contacting major institutional investors, speaking about lawsuits, insinuating unfair ex-parte communications with major holders, and insinuating things like Sirius XM on the verge of paying “regular dividends” and about to announce price-earnings ratios. I get what Nader is trying to accomplish. I really do. However, there is also a dis-service in what he is saying. Here is one letter:
January 14, 2014 F. William McNabb III, CEO Vanguard Group, Inc. P.O. Box 1110 Valley Forge, PA 19482-1110 Dear Mr. McNabb, As a shareholder in Sirius XM, the offer by John Malone to buy out the 47 percent interest that his companies do not own came in well below the value of this growing company. Sirius is rated 4 stars by S&P, with a buy recommendation. Moreover, last week, Leon Cooperman, founder of hedge fund Omega Advisors, Inc. – a major holder of Sirius XM shares – declared, “We think the offer materially undervalues Sirius.” Your Fund is listed as one of the top institutional investors in Sirius. Under Delaware law, John Malone must demonstrate that the Special Committee is “independent” and that a majority of the minority has been secured before making its decision. I am writing this letter to urge you to reject this inadequate offer. More information is needed to allow the shareholders to determine how inadequate Malone’s offer is. That presumably is one of the objectives of the shareholder lawsuits that soon will be filed in Delaware’s Chancery Court. Your fiduciary responsibilities, of course, run only in one direction, and that is to protect and improve the values and rights of your shareholders or investors. For your individual savers, this point can be phrased as maximizing the returns on retirement accounts and other savings accounts on Main Street, USA. When a majority shareholder like John Malone, Inc. makes a move to acquire the remaining shares, in this case through a stock exchange, the majority shareholder’s representatives often contact the large institutional shareholders before the public announcement to get their reaction. This seems to be an unfair ex parte contact that can disadvantage individual minority shareholders or investors in your fund, especially since the institutions may hold a majority of the minority shares. Were you contacted before the announcement directly or indirectly by the Malone interests? Kindly respond. Obviously, all remaining shareholders of Sirius want to maximize their returns. The company is expanding its subscribers impressively, building up cash flow, and reducing its debt. It is about to register better price-earnings ratios and may commence regular dividend payments. Mr. Malone’s strategy is obviously to catch this advance early and low, to maximize his commercial values afterwards. I urge you and other large institutional shareholders in Sirius XM to actively oppose this ludicrously low purchase offer in fulfillment of your solemn fiduciary duties commensurate with your influence. Sincerely yours, Ralph Nader PO Box 19312 Washington, D.C. 20036
Here is my critique of what Nader is doing:
1. Nader calls the offer inadequate, but offers up no real evidence to support his stance. His evidence is that the S&P rates Sirius XM as a 4 star investment and that a hedge fund says that the offer is inadequate. These examples do not really cut the mustard as convincing evidence that the offer on the table is bad. What does S&P rate Liberty as? What does the hedge fund rate Liberty as? Right now Liberty has a mean analysts target of about $173 per share without this deal. The high target is an impressive $220. The low target is $138.
2. Nader does point out Delaware law, but then again, so did Liberty. “Under Delaware law, John Malone must demonstrate that the Special Committee is “independent” and that a majority of the minority has been secured before making its decision.” This is quite true. It is why getting the proper information is critical…not shooting from the hip.
3. Nader states, “More information is needed to allow the shareholders to determine how inadequate Malone’s offer is.” I agree with Nader that more information is needed, but I challenge Nader to show me exactly why he feels this offer is inadequate. I challenge him to deliver something concrete himself rather than simply adding to the hyperbole. The attitude of “The offer is inadequate because I feel it is worth more” holds about as much water as a spaghetti strainer. I have seen this type of response from many people. If you are going to be amendment with a vote NO on this, you better have something concrete to back up your amendment feelings. I get wanting more information. I do not get these people saying no when they do not have enough information to really assess.
4. Nader states, ” That presumably is one of the objectives of the shareholder lawsuits that soon will be filed in Delaware’s Chancery Court.” Indeed, these will be filed, but is this letter about getting information to make an informed decision, or about riling up support of the sheeple investors out there that will glom on to any conspiracy theory.
5. Nader state, “Your fiduciary responsibilities, of course, run only in one direction, and that is to protect and improve the values and rights of your shareholders or investors.” I agree. and for Ralph, a person that clearly lacks the information to make an informed decision (as we all do), how can he (or anyone) arrive at the conclusion that the deal may not be in the best interest of shareholders. It very well could become a much more attractive investment moving forward. Simply stated, we need to know more before jumping to a conclusion. I had a communication from an investor that labeled Live nation as “garbage”. I asked a very simple question…”what is the market cap of Live nation and what was its performance last quarter”. The person had no idea, but labeled Live Nation as garbage. Kinda funny.
6. Nader defines the responsibility of a Board to maximize and act in the interest of Main Street USA. This is about as big an untruth that is out there. The Board acts in the best interest of shareholders PERIOD. Be it you, me, or an institution.
7. Nader states, “When a majority shareholder like John Malone, Inc. makes a move to acquire the remaining shares, in this case through a stock exchange, the majority shareholder’s representatives often contact the large institutional shareholders before the public announcement to get their reaction. This seems to be an unfair ex parte contact that can disadvantage individual minority shareholders or investors in your fund, especially since the institutions may hold a majority of the minority shares. Were you contacted before the announcement directly or indirectly by the Malone interests? Kindly respond” – This is a classic case of making the big guys bad guys. Of course the concepts of transactions get floated by big players. That is one of the perks a big player gets. It is how the market works. Would it have changed the dynamic in any way if Vanguard was asked some questions? NOPE
8. Nader states, “Obviously, all remaining shareholders of Sirius want to maximize their returns.” It could be that getting a deal done is the best way to maximize returns…AGAIN…we do not have enough information yet to render such a decision.
9. Nader states, “The company is expanding its subscribers impressively”. That is in the eye of the beholder. The facts actually show that the subscriber metrics are constricting and not expanding. Yes, sub numbers are going up, but the rate of growth is flattening out. This statement by Nader flies in the face of reality. I am not saying that SiriusXM will not grow from here, but the subscriber additions are getting lighter.
10. Nader states, “the company…is building up cash flow. This is true.
11. Nader states, “the company is..reducing its debt” This is a half truth. The company reduced some bad debt, but has also taken on new debt. It has been levered to about 3 times EBITDA for a while now.
12. Nader states, “It is about to register better price-earnings ratios and may commence regular dividend payments” I take exception to this statement. It is simply not at all very accurate. The price to earnings ratios have been pretty consistent for quite some time. The real problem here is the dividend statement. The company is likely not anywhere close to dividends. The company is in the midst of a massive share buyback program that will last quite some time yet. Dividends are not likely on the horizon for years. Making this statement just shows that Nader likely has not really been closely following this equity, which begs the question as to how Nader can assess this situation.
The bottom line here is that Mr. Nader seems to be trying to rile up the sheeple into arriving at a totally uninformed conclusion. I get that there are those that have studied what is available and arrived at a preliminary decision. SMART….let me repeat that…SMART investors are still assessing the situation, not arriving at rash conclusions based on hyperbole. It is my opinion that Liberty will need to sweeten the offer to get a deal done, but I am not about to say that a deal is bad. Sorry Mr. Nader, but you are WAY, WAY, WAY off base here. You would have much more traction in campaigning for more information for investors to consider.