Sirius XM: Significance Of Voting

| About: Sirius XM (SIRI)

If you are a Sirius XM (NASDAQ:SIRI) shareholder as of April 2, 2012 then you are invited to the 2012 Annual Meeting:


Time and Date: 9:00 a.m., New York City time, on Tuesday, May 22, 2012

The Auditorium

The Equitable Center

787 Seventh Avenue

New York, New York 10019

Items of Business: 1. To elect the eight directors listed herein;
2. To ratify the appointment of KPMG LLP as our independent registered public accountants for 2012; and
3. To transact any other business properly coming before the annual meeting and any adjournments thereof.
Who may Vote: Stockholders of record at the close of business on April 2, 2012.
Important Notice Regarding the Date of Availability of Proxy Materials for the Stockholder Meeting to be Held on Tuesday, May 22, 2012: We are pleased to be using the Securities and Exchange Commission's rules that allow companies to furnish proxy materials to their stockholders over the Internet. In accordance with these rules, we sent stockholders of record at the close of business on April 2, 2012, a Notice of Internet Availability of Proxy Materials (Notice) or a full set of proxy materials on or about April 12, 2012. The Notice contains instructions on how to access our Proxy Statement and Annual Report for the year ended December 31, 2011 over the Internet and how to vote.

What a great excuse to go to New York. Since most of us will not be able to attend, we can be there in spirit by voting our proxy. I know that it seems very elementary to be telling you this, but it is extremely important-- particularly this year. Most of the time I do not even send in my proxies because I feel that the board members are going to do what they want to do anyway, and it is such a hassle to get everything together and send it in.

But this time the "other 60%" that own the Sirius common shares must stick together! Liberty Media (NASDAQ:LMCA) owns 40% of the company in the form of preferred stock, and it does not have to depend on proxies to vote those shares. Because Liberty has filed with the FCC for de facto control of Sirius XM, there will probably be a lot of tension at this meeting.

SIRI vs. S&P 500

Consider that the current board and leadership has taken the shares on a constant upward trend over the last three years. Even if you own very little stock, every vote counts in a proxy fight. By now you should have received your proxy in the mail. If not, call your broker to find out where it is. Keep in mind a proxy is only for actual stockholders of Sirius XM. If you own options, they do not count. Also, this year you can vote on the internet at it takes less than a minute. Be sure you have your number from the proxy material on hand. If you own shares in more than one account you will have a different number for each account. Also, investors can vote by phone at 1-800-579-1639.

As it says in the SEC filing above, the purpose of the proxy is to elect the 8 members of the Sirius board that represent the "other 60%", ratify the public accountants, and transact any other business. One bit of "other business" that could come up is the use of the company's cash which by the end of 2012 could be as much as $1.5 billion. Liberty wants to use that money to buyback shares to increase its stake in Sirius without spending any of its own cash. However there are shareholders who are against this idea. Could the recent de facto control fiasco be a ploy to get the buyback passed? This actually may be common ground for the two companies.

There is a very good chance that CEO Mel Karmazin will recommend the cash be used for a share buyback in order to return capital back to stockholders. As I have said in another article, a buyback could increase the price of the stock significantly. Because of the roll-out of the 2.0 in Chryslers, and the boom in new car sales, among other things, I feel that the analysts that have the higher price targets are the most likely to be right. If we assume the share price is $3.20 at the end of the year the market cap (of the common shares) would be 12 billion.

  • Barrington, James Goss, $3.00
  • Maxim Group, John Tinker, $3.20
  • Hefferman Capital Mgmt, $3.40

Now let's assume that Sirius does a buyback. If we round the common shares to 3.75 billion and Liberty's shares to 2.75 billion, it would take approximately one billion shares to give Liberty more than 50%. At today's price that would be $2.2 billion. Sirius does not have that kind of money without going further into debt. However they will have $1.5 billion in cash at the end of the year. It is not that farfetched to think that they could buy $1 billion in stock. At the current price that would buy 450 million shares. This would bring the outstanding common shares down to 3.303B (3.753B - 450M). The market cap of $12B would be the same, so the new share price would be $3.63 ($12B divided by 3.303). So this is actually a64% gain...

If Liberty did not participate in the buyback it would increase its percent to 47%, and lower the common share market cap to $11B, making the shares worth $3.50 per share. This means that for Liberty to reach 51% before the end of the year, the company would have to do this buyback and buy 4% more stock. I have read a lot of articles that say Liberty will not spend a cent to get over 50%. So the buyback would have to be bigger which could send Sirius further in debt. This is something that would upset a lot of shareholders. The other alternative is for Liberty to go to 47% this year and 51% next year. This is the most probable situation, in my opinion. The buybacks would probably continue until Liberty has 80% to take advantage of the NOLS which are worth billions. The investors that are the "other 20%" by that time will be handsomely rewarded.

Another very important vote will be the election of the new board members. The board has 13 seats, 5 are representatives of Liberty's 40%. The most controversial person on the board (to me) is Leon D. Black. He is one of the 8 "common share" members. A few weeks ago the Wall Street Journal pointed out that Mr. Black had missed a lot of meetings:

The chatter is that Mr. Black hasn't attended a single meeting in the last few years, either in person or by phone. Sirius and a spokesman for Mr. Black each declined to comment. Of course, Mr. Black is a busy guy. He still runs Apollo as chairman and CEO, sits on boards at several other companies, and has trustee roles at the Museum of Modern Art and the Metropolitan Museum of Art. But given Mr. Black was paid $70,000 in Sirius option awards in 2010 - the last year so far disclosed - investors may want to start taking attendance.

In spite of this, Mr. Black must offer some value to the company. Why else would he be kept on the board? Considering his exceptional knowledge on how to run a successful company, and his popularity in the Art World, I think he offers prestige to the board, if nothing else. But when you vote, you do have the option to remove him.

If you do not own Sirius shares, there is still time to get a piece of this "cash cow". Due to the tech sector being down, and new problems in Europe, the entire market is down. Sirius is at a great price right now. This is a major dip, and yet the share price is still up 400% to the S&P over the last 3 years. Next week there will be an earnings conference call that should bring very good news, and it may boost the share price to a new high for the year.

Disclosure: I am long SIRI.

Additional disclosure: I may add to my Sirius XM position in the next 72 hours.