At the annual Sirius XM (NASDAQ:SIRI) shareholder meeting in New York on Tuesday CEO Mel Karmazin and the company reportedly barred most press from entrance. Except for a couple investor/authors who attended, and have reported a story or two, the news from the meeting has been stifled. However the Wall Street Journal was able to report some valuable information:
"Our stock sucks," Mr. Karmazin said, responding to a question about Sirius' share performance. He said, however, that the stock had performed extremely well against other companies listed on the Nasdaq Stock Market since 2009.
Some investors expressed displeasure with his plan to sell 60 million shares, nearly half his position.
"Sirius is the only stock I own," he responded.
Mel is right, the stock has performed very well since 2009. However since the news that Liberty Media (NASDAQ:LMCA) was trying to take de facto control of Sirius without paying a premium to shareholders, the stock has been declining from a high of $2.40 in March. After the FCC rejected Liberty's attempt at control, the company began buying shares on the open market, and announced a forward agreement which would bring (Liberty) ownership from 40% to 46.2% by July. That news combined with the gloom and doom in Europe sent the stock plummeting to $1.78.
A lot of investors have thrown in the towel, and many more are wondering if they should do the same. As I commented in another article if I could predict the outcome of this situation 100% correctly I would be writing this article from my own private island. But I can look at the company and all of the players involved and try to anticipate an outcome. There is one thing we know for sure: Liberty wants control of Sirius XM. And we know there is a deadline. The FCC allows 30 days to re-file an application. According to CEO Greg Maffei, Liberty will do just that by June 3. Based on the language in the dismissal, the company must be able to show a 51% ownership of Sirius to submit another application. Liberty was counting on a Sirius share buyback to get the additional 4% that they need. However it seems Mel is not in a bargaining mood. According to the WSJ:
When shareholders don't sell into a buyback, their stakes rise as the number of shares outstanding declines.
Sirius "would not do a buyback if it facilitates Malone getting control," Mr. Karmazin said.
This will make a lot of investors happy. Many had opposed a buyback that would hand the company over to Liberty. However an equal number of people will be disappointed in this news, because a buyback would be very beneficial to the share price. Now Liberty must come up with enough shares to force a buyback, and gain approval for control from the FCC.
When we look at the technical charts for Sirius, everything shows that the stock is in a prime position to shoot up. The 50 day moving average is still above the 200 day MA showing that the upward trend is still on track:
The P/E ratio is down to 23.88, with a forward P/E of 17.36. This is very low for Sirius. Investors were gobbling it up when the P/E was over 50. And when we look at Sirius compared to the Nasdaq and the Dow, we can see that everything is running along together. Basically Mel, it all sucks. Especially Pandora (NYSE:P), one of Sirius XM's biggest competitors, which is doing much worse than the other three. One word of caution: These are live graphs, and the picture may not look the same to someone reading this article in the future.
Obviously since I considered Sirius an excellent buy at $2.40, I think the price now is a steal. Is this the bottom? It is very hard to tell. But somewhere between now and June 3, Liberty must make a play for the 260 million shares they need, or they will lose their place in line at the FCC. That means they could buy 35 million shares a day for the next eight buying days to keep the stock from zooming up too high. But every day that they wait, the number of shares per day will increase. Now it is possible that Liberty could structure another forward agreement. But the FCC will not approve the application until they actually own the shares, so this will cost time. And we all know that time is money.
Mel wants Malone to pay a premium, but I don't see that happening when he can buy on the open market for such low prices. I still think that Liberty wants a buyback that will push the company over 51%. And if Sirius tries to do a buyback which will not give Liberty a higher chunk, its board members will veto it. So the company is now forced to buy a controlling interest. John Malone doesn't seem like the type to leave over $1 billion in Sirius cash laying around dormant. He will probably make a move when we least expect it. If you are too afraid to buy right now, I suggest you call your broker about options while the price is down. This is going to get interesting.
Disclosure: I am long SIRI.