Many Sirius XM (SIRI) investors were hoping to get some insight into CEO Mel Karmazin's future with the company at the October 10th Liberty Media (LMCA) investor meeting. It is an issue that seems to be raised often in interviews and articles. It was also one of the reasons I expected the investor meeting to be an uncomfortable situation for Karmazin.
During the last Sirius XM earnings conference call on August 7th, the issue of Karmazin's contract was raised by Barton Crockett of Lazard Capital Markets. He asked:
Mel, I know your contract comes up for renewal at the end of this year. You suggested a degree of I think reluctance to work for Liberty, and I'm just wondering if that gets tied up into discussions with them about what they do with their stake and if you've begun discussions with the Board about potentially renewing after 2012?
... the fact that I was asked a question two years ago about working for somebody and I told them that my experience at Viacom was such that I didn't enjoy and I like working for a Board as compared to working for a controlling shareholder was something that I said. And then every time the discussion of Liberty comes up somebody is coupling my name into that.
...Regarding my contract, it doesn't expire until the end of the year, and prior to the Q3 earnings call, prior to our next call I think the Board and I will deal with it.
More recently, at the Bank of America Merrill Lynch Media, Communications and Entertainment Conference on September 12th, the issue was also raised. It was at this conference that Karmazin made further revelations about his views on his future, including:
- "My instincts are that Liberty does not need me at the company."
- "I have historically been expensive. It's very clear to me that if I were Liberty, I would sit there and say, 'I'm not sure we need Mel.'"
- He put his contract talks on hold while Liberty was in pursuit of control of Sirius XM, he wanted to avoid any "perception of a deal" or that he had "sold out."
- He offered to extend his stay if Liberty needed him during a transition
- There were circumstances that could be attractive for him to stay if Liberty intended to subsequently spin out Sirius XM into a new public company
Karmazin further stated that the circumstances surrounding the perception of a deal had now changed since Liberty had made substantial purchases of stock. The war of words was not just one sided. At the Goldman Sachs conference later that month, Liberty CEO Greg Maffei said that Karmazin is valuable, but not "irreplaceable." Maffei added, "I think there are plenty of people who could do a great job running the business,"
The third quarter earnings call for Sirius XM is scheduled for October 30th, only three weeks away. If Karmazin's contract was going to be extended, yesterday's investor conference would have been an excellent opportunity to make an announcement about the situation. Even revealing that there were now discussions, or progress in those discussions, would have been welcome news to many investors.
It's no secret that I am not a big fan of Karmazin. I hold him responsible for the mismanagement of the debt that led to the near-bankruptcy of Sirius in early 2009 and the dilution of the equity. Other investors have very different feelings, believing that if Karmazin stays at Sirius XM, the market would place a higher value on the shares. I hope they are wrong, because I think Karmazin is on his way out the door.
Yesterday would have been an excellent opportunity for the parties to indicate that there was a reconciliation, or that Karmazin's future was actually being discussed. It did not happen. Instead, Karmazin showed up late and left early. We know this because ten minutes into the presentations, when Maffei began discussing Sirius XM, he said "and I see Mel has just entered the room, so that's good." Later, when the Q&A was underway, and a question about Sirius XM was asked, Maffei said, "I believe Mel had to go, so I'll have to interpret for Mel, which is the best I can do."
I noted that the investor conference could present an uncomfortable situation for Karmazin. Coming late and leaving early is one way around the situation. It's just not the behavior I would expect from someone expecting to be around for the next several years.
Additional disclosure: I have $3 January 2013 covered calls against most of my Sirius position, as well as some $2 and $2.50 January 2013 and $2.50 December covered calls. I may initiate (or close) a buy stock/sell option position in Sirius, at any time. Also, in addition to long term holdings, I have recently begun day-trading 10,000 share blocks of Sirius XM and may continue to do so. I have no positions, or any plans to open positions in the next 72 hours, in any of the other companies mentioned in this article.