In Search of the Perfect SIRI Shareholder
Well, it works the same every single time! As a merger or acquisition happens there will always be law firms that seek out a way to capitalize on it. The latest has the law firm of Wohl & Fruchter announcing that it is launching an “investigation” into the SiriusXM (NASDAQ:SIRI) and Liberty Media (NASDAQ:LMCA) control situation.
To be clear, I am going to outline OPINION here. It is my opinion that Wohl & Fruchter are more likely in search of the perfect shareholder (lemming) than an actual investigation into the details of the control issue between SiriusXM and Liberty. You see, they need a shareholder (lemming) with the proper standing in order to make a viable case. They need a shareholder (lemming) that will say the right things, has held the equity for the proper length of time, and is willing to continue to hold the equity throughout the course of this investigation as well as potential litigation. What better way to find that shareholder (lemming) than to issue a press release asking shareholders (lemmings) to contact the firm.
The investigation, or at least a substantial part of it, will likely center on interviewing shareholders (lemmings) to get all of the proper legal ingredients in place. Guess what? They will be successful in that endeavor. There are plenty of lemmings (shareholders) out there that will fit the bill. In my opinion this firm is simply seeking the lemming (shareholder) that gets closest to being the average person. Let me be clear, not all SiriusXM shareholders are lemmings, but any equity has its fair share of them. It is the lemmings that will respond to this “investigation.” Real shareholders have known that Liberty would gain eventual control since the day the 40% stake deal was struck.
Ironically, many aspects of this “investigation” have already been addressed by very high courts in the Blessing and Shenk lawsuits and subsequent appeals. The existence of these suits actually lessens the odds that a new one will have any real luck it even getting off of the ground.
So now we have according to the law firm:
“Our investigation concerns whether Liberty Media and the board of directors of Sirius have complied with their fiduciary duties in connection with Liberty Media’s efforts to acquire majority ownership of Sirius, including the failure by the board to adopt takeover defenses, take other steps to prevent Liberty Media’s acquisition of majority ownership, or impose conditions for the benefit of Sirius’ public shareholders.”
This is actually quite clever. the firm is bringing in Liberty Media, when the true underlying question is with SiriusXM. When the Liberty bailout happened, Liberty Media had no responsibility to SiriusXM shareholders at all. Their sole responsibly was to Liberty shareholders. The provisions of the anti-takeover measures were outlined prior to Liberty Media having any responsibility to SiriusXM shareholders. In essence this investigation is contemplating a suit against the SiriusXM Board of Directors. However, it is kind of tough to find a “fan” of SiriusXM stock to sue the company that they love.
It is true that Liberty Media is immune from a poison pill. Perhaps it could be argued that SiriusXM should have never allowed this condition to be included, and that stance may have merit, but does it really cause damage to anyone? These are things that were already argued and heard in earlier cases. Even the fact that Charles Ergen had a proposal on the table has been discussed.
Let’s assume for a moment that the SiriusXM situation mirrors closely the transaction between Liberty Media and DirecTV. Did that not wind up allowing everyone to see a positive impact? Did it not remove a large shareholder (Liberty) from the DirecTV equation? How do we know that the Liberty plan for SiriusXM might not take this company to the next level?
We will see these things continue to happen, and of course they will cost SiriusXM money in the process. If the law firm of Wohl & Fruchter has a response that outlines the scope of this “investigation” than I would be more than happy to publish it in fairness.
Spence,
I agree with your view that this lawsuit will likely go no where.
I would raise a mild concern with the Liberty takeover, however. While I expect things will work out for them, i.e., they get their plus 50%, initiate a Sirius share buyback, then do an RMT, it is not without risks to Sirius shareholders. It all depends on how much debt Liberty loads Sirius with. I would not condemn all venture capitalists for I believe most are doing good work. But its not unommon in our recent financial history for a VC to come in, load a company with debt, take their money out and leave remaining shareholders with excessive debt, and a deteriorating share price.
Debt is very cheap right now, historically cheap. That might be a reason to borrow a lot, but eventually that debt has to be repaid or refinanced. It is foolish to believe that rates will remain this low, and no matter the term, if refinancing is required at some point,it most likely will be at a higher rate. This is what killed SiriusXM (and other companies) in 2008/09. Not only was debt expensive, even for AAA rated companies, it was unavailable to many other companies. To believe it will never happen again seems unrealistic.
Now its “differnet this time”. Sirius has strong cash flow, pretty decent growth rate in profits, if not revenue. But what happens next year if it has to start paying more royalties, Stern finally decides to leave (at least we go through that uncertainty again when his contract expiresin Dec 2013), and the economy turns south again.
How bad is the next crisis going to be. Sure it might all turn out well and I suspect it will, but why put Sirius in a situation with excessive debt when the only reason is for Liberty to get their money out as quickly as possible.
I would remind people why Ford survived without government help and GM and Chrysler did not. It wasn’t because of the unions, or the style of their cars, or some government regulations. It was because Ford had the foresight to raise enough cash to weather a severe storm and GM and Chrysler management didn’t.
So while Sirius has quite a bit of room to take on more debt, probably at least $1 billion. If we start hearing that Malone wants to do a 20% buyback that would clearly require substantially more debt, we should be concerned.
Stern signed a 5 year contract.
Spence, this is just an ‘Ambulance-Chaser’-like [law] firm who is trying to piggy back on the alleged suit by the Police-Pension fund in Florida, while I’ve read alot where people are trying to link the two suits, I’ve seen no evidence to this effect.
No, this is a shark, rather scavenger outfit looking for as many disgruntled investors past and present, to attempt to successfully file a class-action suit which nets the plaintiffs pennies on their dollars, but a GREAT PAYOLA-PAY day for the attorneys.