Why, Mel Karmazin? Why Sell Less Than 10% So Far?

| About: Sirius XM (SIRI)

Since Mel Karmazin, CEO of Sirius XM (NASDAQ:SIRI) announced in February of this year intentions to exercise and sell 60 million worth of his 120 million share stake in options, many investors have been asking the question "why?"

Why would Mel Karmazin begin to sell out now? With what potential many investors see in Sirius XM, many have been left scratching their heads at this move. Why would someone sell their shares unless they felt that the stock would go down? Why would someone sell their shares unless they did not expect the stock to go up? Why would I, as an investor, hold my shares when the CEO is selling his?

I too, asked myself those same questions, and arrived at various answers as outlined in my article here. Part of this article focused on Mel Karmazin himself, and I gave a few reasons for selling by attempting to put myself in Mel's shoes and speaking from his perspective:

First and foremost is that this year, while I am free and clear to sell my shares as I please, there was a looming problem for me on the horizon as of March 6th. After this date, Liberty (NASDAQ:LMCA) may make any number of moves to acquire Sirius XM or increase their stake to controlling interest. While this should not be a problem for me and my shares, it could be. If Liberty makes a move, I'm locked down if I have not shown prior intent to sell, due to complications and insider information which will be flying around left and right surrounding these moves. For me to sell at that time would put me under a huge magnifying glass or might not even be possible at all. Right now I am a free man. Tomorrow I might not be. That is a huge liability.

Second, I'm old, relatively speaking (this author is 34). I'm going to be 69 this year. This is beyond retirement age for most and I'd rather not have such limitations placed on me at this point in my life. I have some goals and aspirations I wish to achieve with my charity work, and honestly, I'd like to see the effects of that before I pass on.

Third, 2012 is a favorable tax climate for me to do this in. 2013 might not offer this opportunity, and if my shares are locked up by a Liberty move, I might end up stuck making my transactions under those less than favorable conditions.

This was over one month ago, and at this point Mel Karmazin has now exercised and sold roughly 11 million shares of stock for the month of April. Doom and gloom for Sirius XM? Bad conference call just around the corner? If your mind is trending in this direction due to his sale, you may want to step back and approach from a different angle.

Consider Mel's announced sale was for 60 million shares beginning in April, and that 11 million shares have now been sold. Some quick math arrives at 49 million shares still held by Mel "to be sold" and 109 million shares held by Mel through stock options in total. 11 million out of 120 million, is 9%. To date Mel has sold 9% of his options, and retained 91% leading into the first quarter conference call.

Sirius XM's first-quarter conference call is on May 1st, which falls toward the earlier side of historic first-quarter calls for the company. Because of this, and because of the fact that Mel has sold out merely 9% of his options, or only 19% of his total planned sale so far, I am asking a different question.

My question is simple. If Mel Karmazin had expectations that the first quarter would not bring about "good to excellent" numbers, then why would he retain 91% of his shares leading into the call?

Now of course, arguments can be made that his planned sales were announced mid February. But I would argue that at this point the quarter was already half over, and Mel could have adopted a plan that sold a larger portion of his stake before the call. Again, I have to attempt to put myself into Mel's shoes. Obviously he would wish to maximize the amount he would receive. With half the quarter under his belt, he should have a reasonable (rough) idea of how Sirius XM will perform for the first-quarter conference call. If things seemed to be going poorly, it would be in his best interest to adopt the plan, and sell a greater portion of shares sooner, rather than later. But he adopted a plan that sold less than 10% of his stake before the call.

This leads me to believe that things looked promising in February, and the sale before the call was merely a formality. The smaller size of the position, which amounts to not even 1/5 of the shares due to be sold, would be a necessary evil of a sale in order to avoid the "insider information" eye of scrutiny.

Put yourself in Mel's shoes and ask yourself "Why?" Why sell less than 10% of your holdings so far? Asking this does give me a little bit of peace of mind in my expectations of "good to excellent" as we move forward into the earnings call, which is merely a week away on May 1st.

Disclosure: I am long SIRI, LMCA.

Additional disclosure: I am long SIRI May and June $2 calls.