Sirius XM Shareholders: Do Not Panic Until February 1, 2013

Oct.23.12 | About: Sirius XM (SIRI)

Sirius XM (NASDAQ:SIRI) CEO Mel Karmazin announced Tuesday that he will step down from his position as Chief Executive Officer at the company. He will also leave his seat on the Sirius XM Board of directors. Investors were shocked when the news came right after the bell. There was also an 8-k filed with the SEC with the same press release attached. The Board has appointed a search committee to find a new CEO for the company. Many suspected that he might not stay, however, most people felt the announcement would be made on the earnings conference call next week.

SiriusXM Radio today announced that Mel Karmazin informed its Board of Directors that he will be leaving the Company on February 1, 2013, following the expiration of his current employment agreement and after a transition period. Mr. Karmazin will also leave the Board of Directors at that time. "SiriusXM is an extraordinary company with an incredible team. It is an honor to come to work here every day where we truly deliver the best radio on radio. I am incredibly proud of what we have accomplished. Given where we started, it is amazing that SiriusXM has grown to become the largest radio company in the world.

Three days ago, I wrote an article which said that if he were to leave, the price of the stock would be negatively affected. Yesterday it dropped a little, but not enough to consider it more than a small correction in an already volatile market. But when it fell to $2.80 today, it was clear something else was going on, after such a steep rise over the last two weeks:

Date Open High Low Close Volume Adj Close*
Oct 22 2.94 2.95 2.85 2.91 73,920,800 2.91
Oct 19 2.95 2.97 2.88 2.92 137,909,800 2.92
Oct 18 2.84 2.97 2.82 2.94 174,315,400 2.94
Oct 17 2.86 2.86 2.80 2.84 62,054,100 2.84
Oct 16 2.81 2.85 2.78 2.84 87,526,700 2.84
Oct 15 2.78 2.80 2.76 2.80 58,938,400 2.80
Click to enlarge

Over the last several years, Karmazin has brought the stock from a low of ten cents a share to a multi-year high of $2.97. That is a gain of over 2800 percent. I have talked to many investors on this site who bought thousands (and hundreds of thousands) of shares back then due to their confidence in Mr. Karmazin's leadership. Although many of them are in a state of shock (in a good way) that the stock has jumped higher so quickly, some will not be happy campers with their "Mel" leaving. And whether they deserve it or not, the Liberty Media (NASDAQ:LMCA) executives who designed the hostile takeover of the satellite company will be blamed for any dips in the share price due to the failure of Sirius to produce the same results in the future.Chart forSIRIUS XM Radio Inc.

Under Karmazin's leadership, the company has gone from a relatively unknown entity to the largest radio company in the world. It is now a household name with over 24 million active subscribers. Seventy percent of all new cars now come standard with Sirius XM radios. And that number is going up everyday. There are the 2.0 portable internet/satellite combo radios, as well as hundreds of thousands of smartphones which now have Sirius XM Apps that allow program playbacks and more. Almost everyday press releases from Sirius offer listeners exceptional new programs about everything from Talk Shows and Music to Sports. It will be extremely difficult to fill Mel's shoes. The only reason for shareholders not to panic is that he will stay until the first of February which should take the company through some of the unexpected and unpredictable issues that may come up from the federal government's failed attempts (so far) to handle the fiscal cliff.

What will the future bring for the company; and more importantly for the stock price? There will be some shareholders that sell, which could affect the share price going into earnings. From there it will depend solely on earnings results and whether or not the company announces a buyback. As I said in my other article the only silver lining that might come from Mr. Karmazin leaving, is that the shares will be priced lower for a buyback, which means that more shares could be purchased with less money. I never like to tell other people what to do with their money, because everyone has a different situation. But to sell your shares before the buyback probably would yield a much lower price. So far, until February anyway, this is still the same company with its popular CEO at the helm.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.