Preliminary Settlement of Merger Class Action Upcoming
At one point in the early part of the merger process, a class action lawsuit was brought against Sirius by a pair of shareholders who sought additional disclosures prior to the shareholder vote. An agreement was reached regarding this, and additional information was presented to shareholders in the week prior to the vote. As with any class action suit, members of the class have various decisions to make, or can choose not to take any action. Class members are shareholders of record between February 19th 2008 through November 13th, 2008. We have included the preliminary settlement paperwork below for interested parties to review. Activity regarding this issue will be happening in the next few weeks. It is not the position of this publication to offer a stance on the issue, but rather to present it to readers for whom it may have implications. My personal opinion will be in the comments section of this article.
Position – Long Sirius, Long XM
I am purposely keeping my opinion on his reserved, and am refraining from getting into deep detail of why and how I arrived at the position I did.
I feel that the most prudent move for me as an investor is to opt out of this class action suit. I feel that the additional information provided was not substantial enough in value to me as an investor to fore-go the loss of rights that will happen if I were considered a member of the class.
The settlement achieved the following disclosure:
http://investor.sirius.com/Edg.....;SID=07-00
__________________________________
On October 24, 2006, Mr. Karmazin briefed the Sirius board of directors on his discussions with XM regarding a possible business combination, summarizing his discussions with Messrs. Parsons and Panero over the past month. Among other things, Mr. Karmazin discussed with the Sirius board of directors regulatory issues involved with a merger, the likely market reaction, and the value creation and synergies that would arise from a business combination. The Sirius board of directors engaged in an extensive discussion of the potential cost savings, including savings in cost centers, research and development and general and other expenses. The board further discussed XM’s assets, its relationships with automakers, whether there were other potential bidders for XM, and XM’s capital structure. Following this discussion, the Sirius board authorized Mr. Karmazin to continue discussions with XM.
In connection with their due diligence reviews, Sirius and XM instituted procedures to ensure that competitive information that was not legally appropriate to disclose was not exchanged by the management of the companies. In certain cases, management of each company reviewed documents provided by the other company that did not include competitive information; and, in other instances, outside counsel to each company reviewed materials but was not permitted to share competitively sensitive information with their clients. Sirius and Sirius’ advisors reviewed, among other things, XM’s agreements with automakers (Toyota, Hyundai, Nissan, General Motors, Honda), sports leagues and conferences (MLB, NHL, ACC, Big East, Pac-10), retailers (Wal-Mart, Circuit City, Best Buy), news providers (CNN, Fox News), entertainment content providers (Oprah, Opie & Anthony, Starbucks, ABC/ESPN), technical service providers (Loral, Sea Launch) and radio manufacturers (Delphi).
Sirius’ advisors also conducted a due diligence review of XM’s litigation and regulatory matters, including but not limited to: (i) the purported stockholder class action captioned In re XM Satellite Radio Sec. Litig., Civ. Act. No. 06-00802 (ESH) (D.C.), which has since been dismissed with prejudice; (ii) an action by members of the recording industry captioned Atlantic Recording Corp., et al., v. XM Satellite Radio, Inc., No. 06-3733 (DAB) (GWG) (S.D.N.Y.); (iii) a purported consumer class action captioned Enderlin v. XM Satellite Radio Holdings, Inc., et al., (E. Dist. Ark.); (iv) proceedings before the Copyright Royalty Board; (v) an arbitration concerning satellite insurance matters; and (vi) various FCC, FTC and SEC inquiries. In connection with these matters, Sirius’ advisors reviewed pleadings and court filings, conducted research and received briefings from XM’s in-house and outside counsel.
Supplemental Disclosure Concerning Reasons for the Merger
Sirius believes that the merger will result in significant cost synergies. Wall Street equity analysts have published estimates of the present value of cost synergies ranging from $3 billion to $9 billion. Sirius expects operating cost savings to be achievable in almost every cost item on the companies’ income statement, including:
– sales and marketing (through, among other things, lower brand advertising expense, cost reductions in retail relationship management, sales training, retail placement monitoring, and ad sales);
– subscriber acquisition (through areas such as lower radio production costs driven by enhanced scale);
– research and development (including through the possible elimination of duplicative R&D efforts with the adoption of technological developments across platforms, and the elimination of overlapping R&D resources);
– general and administrative expenses (through the elimination of redundant staff);
– product development;
– content (through potential improvement in margins given broader audience reach and lower internal programming costs by elimination of certain channel overlap); and
– programming operating infrastructure (as a result of the potential to rationalize maintenance and administrative capital expenditures, and avoid the duplication of disaster recovery expenses).
Moreover, over the long-term, Sirius believes the combined company will derive significant additional value by procuring its future generation satellites and terrestrial repeaters as a single entity and by potentially reducing satellite, engineering and support requirements.
Supplemental Disclosure Concerning the Sirius Board of Directors’ Recommendation
The factors and risks considered by the Sirius board of directors in connection with its determination that the merger and entering into the merger agreement with XM are advisable and in the best interest of Sirius and its stockholders, and its approval thereof, also include the probability that other strategic alternatives would fail to provide Sirius’ stockholders with the same value, synergies and cost savings as would a business combination with XM.
Supplemental Disclosure Concerning Opinion of Financial Advisor to the Sirius Board of Directors
The table below lists premiums for the transactions reviewed in connection with this analysis:
Sirius paid Morgan Stanley $4,576,000 in connection with Morgan Stanley’s services rendered as the administrative and collateral agent under its $250 million senior secured term credit facility. In addition, in the five years preceding the execution of the merger agreement, Sirius paid Morgan Stanley an aggregate of approximately $28,000,000 in connection with the underwriting and placement of various issuances of convertible debt securities and debt securities.
Supplemental Disclosure Concerning Regulatory Approvals Required for the Merger
In response to a “Second Request” for information relating to the merger from the U.S. Department of Justice, Sirius has produced millions of pages of documents from the files of many of its executives. These documents include business planning documents, documents discussing competition in the audio entertainment industry, pricing documents, as well as documents covering numerous other categories. In response to the Second Request, Sirius has also produced data regarding its business operations, including information on revenues, sales, and prices which was requested by the Department of Justice. As part of its investigation and as is typical in Second Request investigations, the Department of Justice has taken deposition testimony and, Sirius understands, has requested information from some third parties, including from Sirius’ competitors in audio entertainment. On September 4, 2007, Sirius and XM each certified to the Department of Justice that they were in substantial compliance with the Second Request.
____________________________________________
I am not making a recommendation to other shareholders. My opinion is mine, and each shareholder should weigh the information for themselves, and seek the opinion of a financial and/or legal advisor to come to a determination that best suits that persons needs.
MICHAEL HARTLEIB
P.O. Box 7078
Laguna Niguel, CA 92607
March 17, 2008 SENT VIA UPS and E-mail
Attn: William M. Regan Attn: Jeffrey P. Fink
Simpson, Thacher & Bartlett, LLP Robins, Umeda & Fink, LLP
425 Lexington Avenue 610 West Ash Street, Ste. 1800
New York, NY 10017 San Diego, CA 92101
RE: Greg Brockwell et al v Sirius Satellite Radio, Inc. et al
Index No: 600819/07
Dear Mr. Regan and Mr. Fink:
As a member of the Class who will be filing an objection to the proposed settlement, and as per my telephone conversation with Mr. Fink on this day, this letter is respectfully submitted as a formal request for:
? Transcript of the deposition of Mel Karmazin
? All documents provided to plaintiff’s counsel regarding Morgan Stanley’s financial analysis of the merger. All interrogatories, questions and answers. Agreements between Morgan Stanley and Sirius Satellite Radio. All documents provided to plaintiff’s counsel regarding the additional fees of up to $7.5 million and documents and/or internal memos detailing the parameters and/or reasoning to determine whether or not to pay these proposed additional fees.
I am advised by Mr. Fink that the aforementioned information is under a confidentiality agreement and/or a protective order between the parties at the request of defendants and their counsel. This information is material to my filing of the Opposition to the Proposed Settlement and is warranted to a member of the Class, as my interests (as well as the rest of the Class) are not being represented in a satisfactory manner. Other members of the Class will be joining me in the Opposition of the Proposed Settlement and/or opting out of this Class. One has to wonder why plaintiff’s counsel would allow defendants and their counsel to obfuscate this case and shroud it in a cloak of secrecy when the plaintiff’s counsel is supposed to be providing clarity and complete disclosure of all material facts to the Class and its members.
Page 2
March 17, 2008
In speaking with Ms. Schmachtenburg today, she informed me the preliminary hearing is scheduled for March 31, 2008. I advised her I would be filing an opposition to the proposed settlement on my behalf and on behalf of all others similarly situated. I also informed her I was having difficulty obtaining the necessary discovery from counsel and that I would be seeking the Court’s assistance.
Please provide me with the requested information as soon as possible as time is of the essence.
Sincerely,
Michael Hartleib
MH/th
Encl
Cc: Honorable Richard B Lowe III
c/o Miss Schmachtenburg
Much more to follow!
I agree. This is not to say that I dont agree with the merger, because I do. There is too much mystery involved in this case and too much redacted information for anyone to truely make an informed decision as to weather this settlement is appropriate. I too will be opting out.
Newman you have not seen anything yet! Write the Judge and let your voice be heard. With your knowledge it good be of great help. Object. I will be at prelim on 03-31-08 in NY.
Provide the contact information and I will write a letter to them.
You know what my problem with these shareholder class action lawsuits are? The shareholders always get screwed. They never get anything from them, it is the lawers that benefit from them (that is why I always opt out). Michael, while I do agree you have good intentions. If what you say is true and the companies do have interoperable radios already on the market, and are able to just switch them on after the merger, by just sending a signal down. What do you think you are, or for that matter anyone besides the lawers will get out of filing a shareholder class action lawsuit? My guess is, not much but it will give the attorneys on both sides a windfall at the cost to shareholders. I personal hope you are correct about interoperable radios, but think you are reaching on conjecture. While you do have some evidence, it is based on other peoples opinions. It also reqires Mel and Gary and both BODs to be blatantly lying. The DOJ has gotten alot of documents, much of which are internal. They have said it would take at least a year before interoperable radios will be on the market and several years before OEMs will be able to offer them in cars.
Newman, I have read your post on this in the forums. I know you were acting on conspiracy, but believe me the last thing SIRI and XMSR would be worried about is a class action lawsuit from shareholders. The BODs and CEOs would have their lawers working on keeping them out of jail. That is why when Micheal puts forward this theory I am vary skeptical. No offense to you Micheal.