Is Mel Karmazin Falling On His Sword For Common Shareholders?
Mel Karmazin, CEO of SiriusXM Radio (NASDAQ:SIRI) has been at the helm of the company for years now. Overall he has done a good job. There were difficult times like a much longer than anticipated merger process, challenging times, like the near bankruptcy of the company, and great times, like emerging from a bankruptcy scare and delivering the company to a very profitable status. Karmazin has his fans and he has his critics. The same is true for any public figure.
During the course of 2012 Mel Karmazin began exercising option shares and selling them in planned sales. It started out with 60 million shares and most recently had another 30 million shares added. Some were critical of the satellite giant CEO for doing this, citing that he was selling into the hands of Liberty Media (NASDAQ:LMCA), a company that is intent on taking control of the satellite radio provider. Others felt that Karmazin deserved to be able to reap the fruits of his labor.
In some ways Mel is falling on his sword. He was intent on delivering shareholder value throughout the recent Liberty Media process. He expressed a desire to ensure that Liberty Media did not gain control without paying a premium. The problem was that the company and the board had no real way to enforce those desires. The Liberty Media preferred shares gave Liberty what essentially amounted to veto power over use of cash, share dilution, and debt. SiriusXM’s hands were virtually tied. There was nothing that could be done… or so it seemed.
What Karmazin appears to have done was simply make the process of gaining control for liberty Media longer, harder, and more expensive. The strategy has its merits, and the recent activities demonstrate that while we did not see Liberty Media put out a tender offer for the required shares, they have been paying a high price for them.
SiriusXM’s tactics allowed the company to report earnings that were impressive. The street responded with an upward swing in share price that made many smile. Some investors still begrudged Karmazin as his share sales took place each month, but if you dig just a little deeper, you will see that perhaps Karmazin was helping out the common shareholder more than many thought.
That 60 million shares Mel announced planned sales for in the spring required Liberty Media to buy 30 million more shares than they otherwise would have had to buy. That 30 million shares the CEO announced he would exercise and sell a few weeks ago added another 15 million to the total Liberty had to buy. All told, he bought time for the company to get good numbers on the street and also added 45 million shares to the number Liberty needed to purchase. At $2.50 per share, that equates to an additional $112,500,000 in cost for Liberty.
Taking things a step further, Karmazin has refused to negotiate his contract until there is some resolution with Liberty Media. Yes, this protects him from any perceived motive outside the business of acting in the best interest of shareholders, but it also is a card that he can play to apply pressure. His contract expires this year and he could have negotiated an extension months ago that entailed more options, a golden parachute, or any number of things. He waited, and will continue to wait until there is some resolution, and he has more information to work with. Meanwhile he himself will be the difference between Liberty having been at 49.7% or 49.8% instead of the 49.6% today, and perhaps down to 49.5% after he conducts his planned sale this month.
While these moves did will not stop the change in control from happening, they have helped the price of the stock appreciate prior to control changing hands. While investors may not see a premium via a tender offer, it can be said Mel Karmazin did all he has been able to to get the premium via share price appreciation.
Whether you are a fan of the SiriusXM CEO or not, it can not be said that he has not done everything he could to bring value in any way possible. Yes, it can be argued that perhaps a better deal could have been reached without the drama, but that is speculation. In some ways Mel has done investors the biggest favor he could. Let’s just hope that people realize this.
Lets hope that Karmazin gets a 3 year contract or more and stay, most SIRI investors would like to see him stay the only problem is that Karmazin is a confident leader a decisive decision maker who does not like to work under someone, we will have to wait and see what will happened!
Having watched virtually every move Karmazin has made since he became ceo of SIRI, the only conclusion i could ever come to is that he has been a complete and total disaster. This companies stock was trading in the $7 range 8 long years ago,and it still struggles to stay at 2dollars and fifty cents.
How many long term investors have bought into Karmazins lies and crap will totally agree with what i am saying.
Mel Karmazin, Howard Stern, and John Malone have become Stinking rich off the backs of the retail shareholders, the best thing that could happen to all 3 of these people is to go down in shame and broke
Tim you’re right on the mark.
I respectfully disagree. Howard stern, like him and his contract or not, has made this company money.
How much did Martha, Oprah, and eminem get paid? What did they do again? Not only did Howard bring subscribers but, his channels actually bring in ad revenue.
Siri stock is down a whopping 65% since Mel Karmazin became ceo of SIRI Jan. 1 2005.
Really Spencer i generally like your work but to put Mel karmazin on this so-called martyrs post is quite frankly sickening.
Mel Karmazin is walking away with over a quarter of a billion dollars to date in his pocket not including his golden parachute. Howard Stern is walking away with over a Billion dollars in his pocket, and lord only knows what Malone is walking away with.
While us long time investors are walking away with the shaft.
sirius was bankrupt, xm acquired, costs slashed, profits finally reached—doesnt sound too bad–Most issues created BEFORE Mel came on board–The only thing they dropped the ball on was not refinancing before the markets froze up—No one saw that coming or he would have Taken loans
2008-during SIRIXM merger Mel took on the “toxic debt” he said he didnt know XM had. He had a chance to take loans from banks but he waited until it was too late because of financial crises. He brought us on the brink of bankruptcy because of his mistake and in Feb 2009 he gave 40% of SIRI for only $1200 and half a billion dollar loan which he paid it off in few months to his buddy Malone…He gave this company away to Malone for FREE. Only smart long term investors saw this happening and can figure this out.
Your correct. Mel made one fatal error, he didn’t refinance. He waited because he didn’t like the terms. Had he done it correctly stock easily at 8 maybe 10. To be paid what he was following that was a crime. Still, I bet he will resign. Malone is no dummy.
Okay Spencer. Duke, this blogger, says you got the buyback plan that Liberty will do all wrong. Please read his comments below and I’d hope you’d clarify this either in a post or a followup article. If Duke is, indeed, correct, your credibility Spencer is in question:
Duke: The Liberty Buyback Plan
By dukeufinstu . 59 minutes ago . Permalink
“I noted that under the new message board format that we have likes and dislikes. At some point last week I had 4 likes and 9 dislikes. I find this very disheartening. The idea that there are four people who read my posts, think they understand them, and actually agree with some part of them means that I am an abject failure. My goal is to turn those 4 likes into zero so let’s see what I can accomplish this week.
The Duke’s gem of the week over on SA comes from an article written by Spencer called Understanding The Liberty Media Stake in Sirius XM, 9/14. You all remember Spencer. He is the guy who thought Liberty needed to acquire 54% of the common before it could replace the SIRI board. Obviously, a truly brilliant and insightful writer of a financial blog. Let’s see what he has to say about how Liberty will structure a buyback once it has control.
“To date Liberty has spent nearly 1.4billion for almost 611 million shares. The common assumption is that Liberty will gain back the money via a share buyback program. In order to do that the company would need to buy back an equal number of non Liberty shares. …we can arrive at a few reasonable assumptions.
1 Liberty will have bought 655 million shares to arrive at 50%.
2. Sirius XM would need to do a buyback of 1.31 billion shares for Liberty to get back approximately $1.5 billion from the common stock purchases that it made.
Does anyone out there see any problem with what Spencer is suggesting? There were 57 comments and no one saw a problem. Little Stevie and Cracked Nuts were there and they didn’t see a problem. Unfortunately, as any second year law student could tell you, the SPENCER BUYBACK PLAN violates current securities law. You can’t put forth a buyback plan that discriminates in favor of insiders vs other shareholders who own the same class of stock. If the plan mandated a 50% buyback from Liberty it would discriminate against other common shareholders who would be limited. Spencer has no clue how buybacks actually work.
SIRI would offer a buyback at 3.00 to all for 1.31B shares. Every investor would have a deadline to submit its shares including Liberty. Lets say liberty offered to sell 655 million shares and the total shares submitted for sale were 2.62B. Then the company would buy 50% from every shareholder who agreed to the buy back and Liberty wouldn’t have its money back. The buyback is controlled by an independent third part so liberty can’t cheat.
If Spencer knew the first thing about securities law he wouldn’t have written an article that was blatantly stupid on it face and if one of you knew any thing about the basics of investing you would have called him on it long before I did. I warned you that I would be trying to get rid of those four likes.
So how is JM going to do a legal buyback, remain in control of SIRI and have all you geniuses holding the bag. I will show you and I have been alluding to it for months. JM wants the FCC to give him de jure control before he converts the preferred. He will then convert just enough of the preferred to common so that he can replace the current board. The new board will lever up the company and do a buy back but it will only buy back JM’s unconverted preferred shares, not the common. All perfectly legal and you get a debt ridden company that JM still controls. Please tell me that there was at least one soul out there who actually had the brains to figure this out.
Last week I mentioned that the FCC could raise a monopoly issue over Liberty’s control over DTV. As expected, there was the Cartoon Character saying, “nice try but Liberty doesn’t control DTV. Just another remark from a guy pretending to know more than he really does. Liberty spun off DTV in 2009 but managed to keep control. How did they do it? LR and I had a conversation about it several months ago. Hopefully he figured it out and can explain it to you. Maybe you think I got it wrong. Search the internet under the heading of The World of John Malone. You will find a flow chart prepared by Gabelli & Co. in 2011 showing Malone still controls DTV. So who do you think has it right, The Duke and Gabelli or the Cartoon Character. Didn’t I ask that question last week?”
ENDS
Simply stated, duke has no idea what he is talking about and is looking for a red herring.
1. Sirius xm can initiate a share buyback that is available to ALL shareholders.
2. The only thing I stated was that liberty would choose to not participate in the first 352 million shares, and then choose to participate in enough shares after that to get back their money. This does not violate SEC regulations. liberty as the same options available to it that common shareholders have.
The blatantly stupid person here is duke, who went of of his/her way to arrive at a conclusion that only a moron would arrive at.
What I write is designed for a higher intellect of investor than duke. I should not have to hold the hand of duke and walk him or her through what is an obvious process.
Duke, next time you open your mouth I have a feeling both of your feet will fall out. Some day you will understand things better. Until that day, stick to the sidelines.
Now duke says that Jim will convert just enough of the preferred to gain control of the board. Gee, I wonder where duke got that from.
I have been saying for eons now that liberty has several paths, one of which is to vote in a new board slate. If they want to replace the board earlier, they convert all preferred. If they want to do it later, they nominate their slate and use their voting power ( from their common and from converting half of the preferred) to do it.
Sorry duke, but your imagination is leading you down a bad path
If Malone does what he and his associates have said in public, Sirius will use all their NOLS, will be profitable and they will not rip the companies insides out(ala Gordin Geiko)–Shareholders will do good too–Its a process that will take time and this stock is the king of wild rumor over the past 5 years