By Relmor Demitrius
Investors in Sirius XM Radio (NASDAQ:SIRI) will be eagerly anticipating this year's proxy letter from the company regarding their annual meeting, usually taking place at the end of May. There may be some issues to vote on that would remove a few questions about the future of the company’s stock and who exactly will be in control.
One of these issues will be if the reverse split is extended again. The current vote on the issue expires June 30th of this year. Mel may want this as a hanging threat over Liberty Media (LINTA) and John Malone if they were to convert their 40% stake into common stock. Why? Because with a reverse split option and a new high authorized share count compared to what would be the new float, a post conversion dilution of Liberty Media would be possible, hence lowering the 40% to a much lower percentage. The reverse split itself would be a neutral event to Sirius XM current stockholders and would serve notice to Liberty that future control is not guaranteed. If the reverse split vote isn’t extended, then its positive the stock price immediately, as current holders can rest assured no reverse split is coming soon. If Liberty wants full control they may have to add to their stake in the open market. I would expect all low ball tender offers for shares to be denied by the board. If this caused Liberty to add faster than they would like, then it could be an overall benefit to stockholders. I don’t foresee Liberty converting, but if there is a battle for control, this is one of the few weapons Mel Karmazin (CEO of Sirius XM Radio) has at his control. I would expect Liberty to vote down all reverse split votes going forward.
Another vote that may come up is to extend the poison pill. If the poison pill expires, this opens the door to other potential buyers. I’ve heard the case before about how much more capital would be required to buy Sirius XM over what Liberty would need. That’s the stupidest argument in the world. Liberty already owns 40%. Might as well tell me the sun may come up tomorrow. That doesn’t mean another company doesn’t want to buy 60% and regain control of the board. If Liberty wants to make an offer for 10% of the company, then this will drive the price up over what the competition offers. Why? Who’s going to accept a lower tender offer from Liberty after receiving a higher one from the third company? Why sell for $2.50, when $3.50 is being offered. Once the new company has board control, they simply deny all tender offers going forward (they own the remaining float and never have to sell). Liberty will be forced to overpay for the remaining control to stop this takeover. Also good for stockholders. Who wins in that war? Existing SIRI stockholders, that’s who.
It will be interesting to see in this coming proxy if Liberty asks for their remaining board seats to be filled. They currently control 3 of 11 seats. It will be also curious to see if Sirius XM adds their allotted 1 more board seat too, and if Leon Black is gone (Apollo Group sold most of their holding of stock). With Leon Black gone the board immediately becomes more believable and removes a huge cloud of dark air surrounding the company’s past. It has always been my opinion that Liberty wants Apollo out of that board room.
It will also be fun to see Sirius XM go by with year two in the books of not increasing their authorized share count. This signals to long term investors that the money train dilution may have left the station for now, and it's all clear to enter positions.
With the poison pill expiring in August, ability to raise rates in August, the May stockholder meeting coming up, and the March expiration of the 49.9% ownership freeze from Liberty, this coming 6 months ahead should be with investors' eyes wide open to the news wires.
Disclosure: Long SIRI