Sirius XM: CEO Mel Karmazin Holds All The Cards Now

| About: Sirius XM (SIRI)

According to an SEC filing Thursday afternoon, all of the Sirius XM (NASDAQ:SIRI) Common Stock Board members were re-elected at the annual meeting except Leon Black, who had almost a billion votes cast against him:

On Tuesday, May 22, 2012, we held our annual meeting of stockholders. At the annual meeting, stockholders voted on the matters disclosed in our definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 11, 2012. The final voting results for the matters submitted to a vote of stockholders are as follows:

Item 1 - Election of Common Stock Directors

At the annual meeting, the holders of our common stock elected the persons listed below as common stock directors.

Votes Cast For Votes Cast Against Broker Non-Votes
Joan L. Amble 1,314,936,993 152,661,673 1,629,665,622
Leon D. Black 512,411,779 955,186,887 1,629,665,622
Lawrence F. Gilberti 1,072,515,113 395,083,553 1,629,665,622
Eddy W. Hartenstein 1,417,014,485 50,584,181 1,629,665,622
James P. Holden 1,116,065,905 351,532,761 1,629,665,622
Mel Karmazin 1,407,785,376 59,813,290 1,629,665,622
James F. Mooney 1,349,614,296 117,984,370 1,629,665,622
Jack Shaw 1,115,576,299 352,022,367 1,629,665,622
Click to enlarge

Our Convertible Perpetual Preferred Stock, Series B-1 (the "Series B-1 Preferred Stock"), does not have the right to vote with the holders of our common stock on the election of common stock directors. The holder of the Series B-1 Preferred Stock is entitled to designate and elect members of our board of directors pursuant to the Certificate of Designations of the Series B-1 Preferred Stock. The holder of the Series B-1 Preferred Stock has designated John C. Malone, Gregory B. Maffei, David J.A. Flowers, Carl E. Vogel and Vanessa A. Wittman to serve as members of our board of directors until their successors are duly elected and qualified.

And the "Series B-1 Preferred Stock" holder, Liberty Media (NASDAQ:LMCA) voted to keep the same five members that represent the company's interest on the board for now. The vote against Black was anticipated due to stories about his absence at many of the board meetings. In a recent article that I wrote about the importance of voting your proxy, I quoted the Wall Street Journal about these missed 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.

So far there has been no press release from Sirius about this. Considering that the press was barred from the meeting, information has been trickling in slowly. From the reports so far, everything seems to have remained the same. As I noted in an article yesterday, Mel did say there would be no Sirius share buyback that would give Liberty a bigger percent of ownership.

Liberty is now baked into a corner. According to the FCC letter that dismissed its bid for de facto control, the company must show that it has control of the Sirius XM Board:

We find Liberty Media's applications to be unacceptable for filing because they are defective with respect to "execution" and "other matters of a formal character." Specifically, Liberty Media was unable to obtain the passwords, signatures and other necessary information from Sirius to properly file an electronic transfer of control application. Furthermore, we conclude that a waiver of basic filing requirements is not warranted, as the facts disclosed in the referenced application are not sufficient to establish that Liberty Media intends to take actions, such as conversion of preferred to common stock and installation of a board majority, that would constitute exercise of de facto or de jure control. We therefore dismiss Liberty Media's applications.

This would require enough shares to demonstrate that control. The easiest route would be to buy enough stock to get to 54%. This would allow the company to have seven of the 13 board members, and would demonstrate "installation of a board majority" to the FCC. Another possibility would be to not fill Black's position, and restructure the new 12 member board with only a 51% majority. That could be tricky, and would probably end in a lot of deadlocks.

Chart forSIRIUS XM Radio Inc.

So Liberty has to play this game by Mel Karmazin's rules now. He has been running the company flawlessly for the past several years. Although a lot of Sirius bears will disagree, the chart above shows Sirius stock compared to Apple (NASDAQ:AAPL) for the last two years. Because of his performance, he is a very popular CEO. Now he also controls the passwords and the signatures required to resubmit the FCC application. And the clock is ticking. According to Liberty CEO Greg Maffei, Liberty will refile within 30 days of the dismissal, which was filed May 3. Mel has said repeatedly that he wants Liberty to pay a premium for all of the necessary information. Even if Liberty does acquire 51% to 54% of Sirius, there is no guarantee that the FCC will approve the application.

When you look at the votes for the directors, you can see that millions of votes were cast against the current board. I am going to go out on a limb and assume that a lot of these votes were investors who sympathized with Liberty. Many thought Liberty's leader John Malone would waltz in and take over the meeting. I think he was hoping the board would be fired, so he could claim Sirius shareholders were unhappy with the current leadership. However that did not happen, and without a buyback, John Malone has to decide how much money he wants to spend now. Given all the time the FCC wasted with the last application, I don't think it will be in the mood to hear about any forward agreements.

Disclosure: I am long SIRI.