Note To Sirius XM Stockholders: You Have A Voice

| About: Sirius XM (SIRI)

The first question on many peoples' minds will be, "Who am I aiming this statement at?" Is it at top management at Sirius XM (NASDAQ:SIRI), or at Liberty Media (NASDAQ:LMCA), a 40% owner of the company? No, the things that I am going to address in this article are already known to those top managers. First, they are brilliant beyond this author's thinking. They run multi-billion dollar companies with great success and anything in this article that they have not thought of has been thought of by numerous analysts and legal people on their staffs.

No, this article is addressed to the millions of stockholders (and potential new Sirius XM stockholders) who own the majority of the company. The "other 60%". For whatever reason, mostly I believe negative press, they feel that they are not important. A lot feel that the company does not acknowledge the fact that they are funding 60% of the operation, and that things are not progressing as fast as they should. I am not one of these people. As I said in my last article, Sirius XM Continues Conservative Path Upward, I think the company is progressing quite nicely. And judging from hundreds of comments to my Sirius XM articles, I think most of the Sirius investors who take the time to comment feel very hopeful and positive about the company.

But there are those other upset investors. Some feel that Liberty Media, the major owner of the company, will swoop down in the middle of the night and buy enough shares to own a majority of the company and destroy the value of Sirius stock overnight. This would be possible according to an agreement between Sirius and Liberty where Liberty cannot buy additional shares in Sirius until March 2012.

If this were to happen, the stock might be converted to Liberty stock thereby diluting Sirius with other Liberty holdings and making it impossible for Sirius stockholders to participate fully in future gains the company will have in the future. Many have gone so far as to accuse Mel of being part of a conspiracy to hold the price of the stock down so Liberty will be able to take over the company at a lower price.

First of all, CEO Mel Karmazin is the last person on earth that would want Liberty to take over Sirius. He has made that crystal clear in various statements where he says he will not be able to work for someone else. And since his contract does not expire until the end of 2012, he would not want to spend his last nine months at Sirius working for Liberty. No, I believe it is the opposite. I think he really feels that to miss estimates will lower the price of the stock. For instance, if he gave bullish guidance for 2012 and the stock jumped to $3 overnight (which everyone was hoping for), any macro financial crisis combined with missing estimates could cause a sudden crash of the stock. Better to leave it as it is - rock solid - and build on that.

This graph shows Sirius XM compared to Apple (NASDAQ:AAPL) over the last three months. Some people have questioned why I am constantly comparing Sirius to Apple. The reason is that I consider Apple to be the "gold standard" on the Nasdaq.

As far as fearing a Liberty takeover, shareholders have more power than they think they do. Consider the recent activities at Talbots (NYSE:TLB), where Sycamore Properties (a major stockholder of Talbots) tried to buy the company. Even though Talbots was losing millions of dollars, Sycamore offered to buy the company with an offer of almost twice the current stock price. It was down to $1.56 a share and in the middle of the night Sycamore offered $3 a share to buy the entire company.

Many shareholders were thrilled, but some were not. They realized that this would keep them from participating in future gains of the company and became very vocal about it. Oppenheimer, a majority owner of Talbots said this offer was way too low, and other stockholders grouped together threatening to fire the entire Talbots board for considering such a low offer:

San Diego, Dec. 6, 2011 (Shareholders Foundation) -- The proposal to take over The Talbots, Inc. at $3.00 per share by Sycamore Partners caused an investigation on behalf of investors of The Talbots, Inc. concerning whether a potential takeover would be unfair for NYSE: TLB stockholders and whether certain Talbots directors breach their fiduciary duties in the event of an acquisition.

Due to this intense pressure the board dismissed the offer and began to seek higher offers sending the price of the stock to $3.50 a share up 124%.

Now, this happened to a stock that was losing money at a catastrophic rate. If Sirius, which is making money and cash at an accelerated rate were to rise 124% on a takeover deal, the price would be about $5 a share. Some might say that would be impossible - consider the P/E ratio. Well, the Talbots P/E ratio was negative at the $1.56 price. So sometimes those things just don't matter. Others will say there is no way this could happen because Sirius XM is locked into a contract with Liberty. My answer to that is that it doesn't matter what a contract says, but what a judge decides.

Consider the current story with Carnival (NYSE:CCL). Passengers signed contracts with the company that said Carnival was not financially responsible for anything that might go wrong on one of their ships. The contract goes on to say that they are also not responsible for the safety of their passengers and if someone is hurt they will not be liable. How do you think this is going to stand up to a judge? Already the safety issue has been addressed and the public has demanded that Carnival become more safety conscience.

ROME, Feb 9 (Reuters) - Insurers stung by multi-million dollar claims over the Concordia shipwreck will demand higher safety standards from the cruise industry, a lawyer who will file suits this month against Carnival Corp for more than 70 plaintiffs said on Thursday.

"There are many ways of bringing about change. One is legislation, but the second one is private. In a pure capitalism world, if the insurance company has to pay more money for claims then they will have more (safety and training) requirements," said U.S. lawyer John Arthur Eaves

Another part of the contract is that you cannot sue the company, but must go through arbitration. Now, due to public pressure the company has been forced to offer each passenger $14,600 each. However, this has only infuriated them further and brought on a class action suit which will demand a minimum of $100,000 per passenger and up to 3 million dollars for passengers that were killed. Yet, Carnival has a legal contract saying this can't be done.

So Sirius stockholders can rest assured that in the rare instance that Liberty would make a low ball offer in the middle of the night, they have rights as shareholders. Now, there will be some who say that this possible takeover would not receive any type of public attention. However, I beg to differ. According to its website, Liberty Media owns a percentage of a number of customer driven companies:

Liberty Media Corporation owns interests in a broad range of media, communications and entertainment businesses. Those interests include subsidiaries Starz, LLC, Atlanta National League Baseball Club, Inc., and TruePosition, Inc., interest in Sirius XM, Live Nation and Barnes & Noble, and minority equity investments in Time Warner Inc. and Viacom.

The "other 60%" is composed of millions of Sirius XM investors including numerous fund managers. Some might want to trade their Sirius shares for Liberty Media, but others may not. These millions of investors could become a major threat if they feel "cheated" by such a takeover. If each of them has a Facebook Account with only 100 friends who each have only 100 friends then each shareholder would have access to over 10,000 people in a matter of hours.

Multiply that by millions of investors and you can see the power each person has to state their case. The Carnival disaster, and that company's failure to handle the situation spread through Facebook like a fire. And then there is always Twitter. Right now Costa bookings are down 35% over last year's bookings. Can you imagine the damage to Sirius if subs dropped 35%?

In conclusion, let me reiterate that this article is not directed to Sirius XM or Liberty Media. As I said before I think they are fully aware of the repercussions that can be caused by angry owners. I really think that John Malone has a lot of respect for Mel, and as the old saying goes, "Don't fix it if it's not broke". Sirius continues to grow at a steady pace due to Mel and his leadership, and Liberty is profiting from that. Again, this article was written to make Sirius stockholders aware of the fact that they do own a piece of the company, and they have certain rights as owners. They are very important and they have a voice.

Disclosure: I am long SIRI.