A lot has been made about the recent insider selling activity that has taken place in Sirius XM (NASDAQ:SIRI). I raised the issue earlier this week when I became aware that the company's Chief Content Officer, Scott Greenstein, sold some shares last week. This arrived on the heels of Mel Karmazin, the company's CEO, and his plans to exercise some options to sell over 60 million worth of shares.
Not that these two events should raise any cloud of suspicion because after all, executives do this all the time and it is understandable that stock options have often served as a means of compensation that doesn't always materially impact the company's books. Why increase expenses via compensation when managers can be paid in stock? I appreciate this reality and it makes perfect sense. But I also became curious of the timing.
In the article, there were a lot of discussions as to why and many possibilities were raised (from readers) that make sense. But I was a bit concerned about the fact that the company's CFO David Frear only owned 1,000 shares, according to Nasdaq. But then, that concern went away after a reader named Homer985 who is arguably the most knowledgeable of any person that I know as it relates to matters involving Sirius, offered this:
- Cameron ... Frear doesn't own "just 1,000" shares. He had 4,756,405 shares, as of February 28, 2011 ... as published in the last Proxy. The source you took the share ownership info from is based on direct ownership of common stock held by them and excludes stock held by their spouse, their 401(k) and any/all options and restricted shares. If you read Frear's last Form 4, it shows that he holds 1,000 shares direct, plus 77,717 shares in his 401(k) and his wife hold 1,900 shares. However, according to the proxy he holds millions more via options and restricted shares.
- Frear has made only a couple market purchases of Sirius stock over the last nine years ... very small ones (around 10,000 shares) and very early on. Mostly, he has a proven history of regularly exercising and selling stock options over the years. This selling has been very regular ... yearly, in fact. Sometimes a couple times a year. As for "direct shares held?" The total has varied over the years, and it is based on how many shares he exercised last and subsequently sold.
To be perfectly fair, Homer was correct and as he suggested, I investigated the document and was comfortable in what I found. But what Homer was unable to explain to my satisfaction was the timing of all of the transactions.
Now again, this week more insider selling has taken place. This time it occurs in four separate transactions. Three by Patrick Donnelly and one by James Holden - two of which occurred yesterday at market prices as shown in the graphic below.
Now again, this does not mean that there is anything fundamentally wrong that is going on in the company for these chronic selling to occur. I am merely raising the question as part of the due diligence process. Is it possible that these executives are preparing for the exit that might eventually occur when Liberty (LMCA) makes their move? I think this would certainly be a positive for the company - because as I've said I think it needs new blood and more importantly a new direction. The prevailing question is when?
Everyone is pointing toward March. There is a lot of speculation and anticipation as to the options that open up for Liberty. Previously, I have been of the opinion that it does not make sense for Liberty to make this acquisition. My previous argument has been that the company has been operating on all cylinders and the best thing for Liberty to do is stay out of its way. But now I think that this is a move that Sirius desperately needs to happen - and I'm now joining the camp that think it will, I'm just not so sure that it will be as early as March.
The fact of the matter is, that date has been circled on many calendars for three years. Why would Liberty do exactly what everyone expects it to do? Being predictable is not a competitive quality on Wall Street and someone as shrewd as John Malone will not play a hand if the table knows the card that he's holding - instead he will fold and play the next round where the roles are reversed. That's his M.O. But then again what do I know?
A lot has also been made about my perceived negative tone toward Sirius - I don't think that I have necessarily been negative. I have raised some (what I consider) very important and appropriate questions. I think it is also fair that some might suggest that in the past I have been too positive toward the company - so in essence both sides may be right. But regardless of how the "tone" is received, my goal has always been to offer something that sparks some thought and generate some real discussions. One of these should now be how much longer Sirius stays as a standalone entity? Insiders are suggesting that they may be on the way out, but then again, it may just mean that they need the money.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.