Seeking Alpha
Long only, research analyst, portfolio strategy, media
Profile| Send Message|
( followers)  

What is now fairly old news to most Sirius XM (NASDAQ:SIRI) investors seems to have missed a few ears. CEO Mel Karmazin's continued exercising and sale of vested stock options is causing a bit of confusion and questioning from those who are not privy to the full details.

Case in point, a question on one of my articles was posted today by Seeking Alpha user captainron007:

If Sirius XM is "running on all cylinders" as Mel Karmazin is fond of saying, then why is he selling such a large chunk of shares? normally this is a sign of something wrong! you know, insider buying=good, insider selling=bad, according to my hero, Peter Lynch.

And my response :

Depends how you look at it. He's selling half, stated it was due to his charitable work.

He is keeping half, as well as the shares he holds long personally. You could also ask why he is keeping more than he is selling...

Which brings me to the subject of this article. I truly feel that the most important question an investor should be asking oneself is why Mel Karmazin is electing to hold on to the other 60 million shares he has due in options, as well as the 8,500,000 shares he holds directly.

When considering the quote captainron007 is referencing, it is important to take the quote as Peter Lynch stated it :

Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.
- Peter Lynch

When taken at face value, the reason Mel Karmazin is selling 60 million shares has been stated plainly as being due to estate planning and in conjunction with some charitable work. Clearly this reasoning fits Peter Lynch's quote above, and I think that too often individuals simply assume that any sale is "bad." When looking at most companies out there, especially where employees are rather heavily compensated through stock options, it is not uncommon to see these options exercised and sold once they vest, at least in part. When the majority of your pay comes in the form of options or shares, it's only reasonable to expect some selling.

But the question that burns in my mind, is why has Mel Karmazin so far elected to retain 60 million shares in options, as well as his 8,500,00 share stake held personally in Sirius XM? Sale of 60 million shares while retaining 68.5 million, appears at the very least to be a "neutral" move. Interestingly enough, Mr. Karmazin claims these shares of Sirius XM are the only stock he owns. Tying up over $135 million of one's personal wealth in a single company can be taken as bullish, or crazy. As much as the bears would like to paint him as some old and senile fool, I don't take Mel for a crazy man at all.

And while considering Mel's $135 million bet on the future of Sirius XM, it is important to consider the largest insider of all, Liberty Media (NASDAQ:LMCA). They've recently increased their stake by over 362,000,000 shares at a cost of over $770 million, and now own over 46% of Sirius XM.

Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.
- Peter Lynch

Indeed, Mr Lynch.

The next time someone asks you why Mel Karmazin is selling some of his shares, kindly remind them. "For estate planning and charity reasons." Oh and don't forget, "besides, he's keeping more than half..."

Source: The Better Question To Ask Yourself Regarding Sirius XM CEO's Stock Sales