The satellite radio company CEO didn’t say that directly in a conference call with analysts this morning. But he sure left that impression after he was asked about the effort by Liberty Media Chairman John Malone — Sirius XM‘s biggest shareholder with about 46% of the voting stock — to take control. It’s been widely believed that Karmazin would split if that happened, based in part on comments he made a few years ago about not wanting to work for someone else. Yet he said this morning that his statements about wanting to be No. 1 came in the context of his frustrations trying to run Viacom under Sumner Redstone. Karmazin left the company in 2004. “My experience at Viacom was something I didn’t enjoy,” he said this morning. So what about working for Malone? Karmazin says that “there is no issue involving Mel” that might interfere and “I can assure you that the board and I are interested in accomplishing whatever Liberty wants to do” as long as it serves all shareholders’ interests. Karmazin says that his contract expires at year end and “the board and I will deal with it” before the next quarterly conference call with analysts. As for the status of Liberty’s take-over effort, ”we really have nothing new to report,” the Sirius XM chief says. “Liberty has to decide what they want to do, and maybe they’ve done that already. They have not exactly communicated that to us.”
Do you believe that Liberty CEO Greg Maffei doesn’t know whether he’ll keep Sirius XM or spin it off if his takeover attempt works? Me neither. But that’s his story and he sticks to it in his interview this morning with CNBC’s David Faber. Maffei adds that he …
In an SEC filing this morning, John Malone’s company says that it will convert enough of its preferred shares in the satellite radio provider into common shares to give it 32% of the total votes. Then “as soon as practicable” it will nominate and campaign for a slate of directors that would constitute a majority of the board. Liberty already has five of the 13 seats. In the meantime, Liberty will continue to buy shares in the open market so it could “replace the entire Board of Directors by unilateral action.” The plan comes as Liberty tries to revive its effort to persuade the FCC to give it Sirius XM’s satellite licenses. Malone’s company says it plays such a big role at Sirius XM that it already effectively controls the company. FCC staffers rejected that claim early this month; Liberty laid out its new take-over plans in conjunction with its appeal of that decision. Sirius XM CEO Mel Karmazin has said that if Liberty wants to buy the company, then it should pay existing investors a premium price for their shares. Malone’s plan would not do that. Still, he might find enough investors willing to sell: Sirius XM shares have lost more than 20% of their value over the last 12 months. The stock price is up slightly in pre-market trading.
UPDATED, 9:55 AM WRITETHRU: CEO Greg Maffei says the battle for Sirius XM isn’t over yet. Liberty, which is controlled by John Malone, just agreed to a forward purchase contract it plans to exercise early in Q3 enabling it to raise its stake in the satellite radio company to about 45.2% from 40%. Maffei says the contract sets a price of $650M for 302M Sirius XM shares, or $2.15 a share. (Sirius XM closed yesterday at $2.17.) ”We thought it was attractive financially,” Maffei told analysts this morning. But more to the point, it ”will have a bearing on our application” at the FCC to have regulators turn Sirius XM’s broadcast licenses over to Liberty — in effect, ruling that it controls the satellite radio broadcaster. Last week the FCC staff rejected Liberty’s application to transfer control of Sirius XM’s licenses, saying it hasn’t proven yet that it runs the company. But Maffei says Liberty intends to file a motion asking regulators to reconsider the decision. With its stock holdings, and control over five of the 13 board seats, “we have the ability to have quite a bit of influence,” Maffei says.
The satellite radio company’s shares are up 11.4% since early Thursday while other NASDAQ stocks collectively are down 4.4%. What’s going on? Well, it seems that many analysts who attended Liberty Media’s annual dog-and-pony show for them on Thursday came away convinced that Sirius XM is preparing to see John Malone lift his company’s 40% stake well past 50%. He has to wait until March to avoid taking a tax hit on such a move — and we all know how much Malone hates to pay taxes. After that there’d be a tax advantage: Sirius has $8B in net operating losses that could be used to shelter future payments. That’s great now, although the losses “sucked” when the company was racking them up, CEO Mel Karmazin told Liberty investors at last week’s gathering. So, is Liberty interested in buying Sirius? A lot of comments that Liberty CEO Greg Maffei made last week sure make it sound that way. “There are few businesses that I have as much confidence in,” he said. ”Boy, it’s got a heck of a tail wind behind it. Find me another business” with as much opportunity. Sirius’ first consumer rate hike, coming in January, ”is a great opportunity and there’s a potential for more…(Profit) margins will expand….It’s our kind of business.” He added that his company
UPDATE, 6:05 AM: CEO Mel Karmazin says he’s not worried that Sirius XM will lose subs beginning in January when the monthly price will rise to $14.49 from $12.95. “We thought about raising the prices more,” he says. The company monitors consumer comments on social networks, and “we’ve seen them say they understand … there hasn’t been much reaction.” Still, he says that “we’re going to work closely with our ‘save’ desk’ ” to retain subs. He assured investors that he’ll keep costs under control but would consider repurchasing company stock or acquiring another company. “All of the bankers visit us regularly,” Karmazin says. He adds that he’s upbeat about 2012 in part because forecasts show a 1M pickup in auto sales, the main source of new satellite radio subscriptions. “The best is yet to come,” Karmazin says. Investors are less certain: Sirius XM’s share price fell more than 5% in pre-market trading after the company’s conference call. Lazard Capital Markets’ Barton Crockett says he’d give the company a “B” grade for its 3Q performance. The market wants to see sub growth and the latest figure, he says, was “light.”
PREVIOUS, 4:25 AM: The satellite radio company is down about 1% in pre-market trading: It reported 3Q net income of $104.2M, up 54% vs the same quarter last year, on revenues of $762.6M, up 6.3%. While the revenue figure was lighter than the $764.2M the Street expected, earnings of 2 cents a share beat analysts’ estimate of zero. Still, the subscription figures might worry some investors: Sirius XM ended 3Q with 21.3M subs, up 364,004 in the quarter.
UPDATE, 6 AM: Sorry, analysts didn’t ask about Howard Stern — and Sirius XM doesn’t allow reporters to participate in its quarterly calls with The Street. So Mel Karmazin stuck with the themes that have served him reasonably well over the years: Promises of cost cuts and lots of love for Wall Street. He crowed that Sirius XM will end 2011 offering “more channels with less programming expense” than it did last year. He put subscribers on notice to expect an increase early next year in Sirius XM’s $12.95-a-month base rate. And he says that he plans to funnel some of that cash to shareholders. (He doesn’t rule out an acquisition but says “they are hard to come by.”) The company says that by year end it will introduce Sirius XM 2.0: It’s built on a new technology that will accommodate additional channels, program time shifting, and replays. The company’s online service also will offer pause and rewind. At least one auto maker will commit to offering Sirius XM 2.0 radios in 2012. About 65% of all new cars come equipped with a satellite radio, and Karmazin says he plans to step up efforts to have dealers install them in used cars. The company also plans to offer a suite of channels for Hispanic audiences. All told, Karmazin says, “we are growing in a very competitive market and a weak economy.”
PREVIOUS, 4:15 AM: The satellite radio company reported 2Q net profits of $173.3M, up from $15.3M in the same period last year, on revenues of $744.4M, up 6.4%. Earnings at 3 cents a share beat the 1 cent consensus among analysts who follow Sirius XM. But they thought that revenues would reach about $752.6M.
Journalist and attorney Allison Hope Weiner is a special correspondent to Deadline and files this exclusive breaking news:
Now it’s getting personal in Round Two of the legal war between Howard Stern and his satellite radio boss Mel Karmazin according to affidavits filed today by Stern and his longtime agent Don Buchwald, reviewed exclusively by me. Only last January, both Stern and Sirius CEO Mel Karmazin were basking in the glow of Stern’s new contract, with Howard praising how well he’d been treated. But it turns out that, even as Stern was inking the new 5-year pact, the two men were already clashing over Karmazin’s refusal to acknowledge that the company owed Stern additional performance-based stock awards because he exceeded the subscriber targets set in his original agreement with Sirius. Three months later, Stern and Buchwald sued the merged Sirius XM. Now new details keep surfacing about what went wrong between Stern and Karmazin.
In the affidavits, Buchwald reveals that in early 2010, he contacted Sirius about why the performance-based compensation that Sirius then owed Stern for 2008 and 2009 wasn’t paid. “Sirius claimed that no compensation was due,” writes Buchwald. He then had Stern’s lawyer write to Sirius’s General Counsel asking for an explanation. The company again refused to pay. “Sirius’s lawyer claimed that the subscribers on the XM platform did not count toward the total number of Sirius subscribers and pointed out that we had already received the ‘merger bonus’,” writes Buchwald. Finally, during the renegotiation of Stern’s original contract, Buchwald tried again. “I attempted to discuss the performance-based stock awards with Karmazin,” writes Buchwald. “Karmazin, however, refused to discuss any resolution of the matter.”
Buchwald alleges that only when it became clear they weren’t going to “make any progress with Karmazin,” he and Stern decided to bring a lawsuit because Sirius was now trying to renege on the agreement. Buchwald points an accusatory finger at Karmazin in the affidavit. “Sirius’s CEO, Mel Karmazin, was not at Sirius when I negotiated the Agreement with the company. The CEO at the time was Joseph Clayton. Scott Greenstein has told me a number of times that Karmazin is unhappy with the size of the Agreement that was negotiated and agreed to by his predecessor, and that Karmazin has said that if he had been CEO at the time, he would have given Stern much less and not given into our demands. He might have tried to do that, but in this case, as I told Scott Greenstein more than once, Sirius would not have gotten Stern.”
Stern for his part, seems to be taking the lawsuit very personally. “Our Agreement is clear — the stock awards are based upon the total number of subscribers that the company has at the end of any given year,” Howard says in his affidavit. “When we were negotiating the agreement, Don raised with Sirius the possibility that Sirius and XM might combine. Sirius never said that, if that happened, it would not count the new subscribers for purposes of the stock awards.” Stern adds that he fulfilled his role of drastically increasing the subscriber numbers and now deserves to share in the company’s success.
Journalist and attorney Allison Hope Weiner is a special correspondent to Deadline and files this exclusive breaking news:
Throughout Howard Stern’s career, his radio contract often prevented him from saying anything nasty about his frequent boss Mel Karmazin. But the shock jock also had little to complain about: Karmazin helped make Stern a very, very rich man at Infinity Broadcasting, then CBS, then Viacom. After Karmazin became CEO of Sirius, he inherited Stern’s original satellite radio deal. Then Sirius merged with arch-rival XM, and last December Stern opted to re-up. Once again, Howard publicly praised Mel, now CEO of Sirius XM. But behind the scenes relations between Howard and Mel were becoming seriously strained. And only 3 months after entering into that new 5-year pact, Stern and his longtime agent Don Buchwald sued Sirius XM, claiming that the company had failed to pay him performance-based stock awards which he’s owed because he exceeded the subscriber targets set in his original agreement with Sirius. But even then, Howard refused to discuss the lawsuit at length or say anything negative about Mel or even Sirius XM.
But that was then, and this is now.
Today, Karmazin confirmed at the Sirius XM shareholders meeting that the company will file a motion for summary judgment in the Stern lawsuit yet also warned that judges rarely dismiss a case at this stage. But the real surprise, several of my sources with knowledge of the dispute tell me, is that Mel is the driving force behind Sirius XM’s position that Howard is owed no additional compensation. Even more of a shocker, they claim Karmazin was never happy with the original Stern/Sirius- $80 million a year in cash and $20 million in stock to program two channels starting in 2006 as well as bounties if Sirius’ subscriptions passed certain milestones — negotiated before Mel arrived. And, here’s the real stunner from my sources: allegations that Mel didn’t take care of Howard financially as well as the world believes: “Mel Karmazin does a much better job of taking care of Mel Karmazin than most other Sirius shareholders,” accuses one of my sources.
At issue is what happened after Sirius and XM merged in 2008 and the combined company nearly went bankrupt in 2009. As the recession killed new car sales (by far the biggest source of new satellite radio customers), Sirius XM couldn’t meet its hefty debt payments. The company’s stock plummeted to below 6 cents. That’s when Karmazin turned to John Malone’s Liberty Media for a rescue: $530 million in exchange for 15% interest as well as 40% equity in Sirius XM. But after the stock went to 50 cents, Karmazin and a few favored executives received options for approximately 150 million shares at that price. Today, Sirius XM stock is over $2.40. ”This option arrangement was not offered to many other shareholders, including Howard Stern,” one of my sources complains. Add to this some massive “golden parachutes” for Karmazin and others, and Stern feels inadequately compensated for his contribution.
“Howard took the job on the promise that he would have a share in Sirius’ future success,” one source with knowledge of the negotiations explains to me. “He worked hard from the day the deal was signed to insure that success. That was the way the Sirius contract was structured. When Sirius needed Howard, they promised him a share in its success.”
Stern’s complaint claims that, in October 2004, Sirius had fewer than 700,000 subscribers and now the combined Sirius XM has 20 million — and he’s responsible for that number. He also claims Sirius was able to merge with its biggest competitor because of him, and he also helped Sirius XM avoid bankruptcy and he didn’t take his rightful payments.
On yesterday’s show, Stern spoke at length about the lawsuit. “Sirius Radio, by the way, was just about going out of business. I sat down with these guys and I said to them: ‘Look — if I leave terrestrial radio and come to Sirius, I’m gonna bust my balls for you. I’m gonna make shit happen… I guarantee you guys acquire XM radio. Forget merge — that’s a horseshit fucking term — acquire XM Radio… But people have a short memory… And now that times are good and they’ve reached ‘it,’ everybody wants to fucking forget what they owe — and who they owe… There wouldn’t be a Sirius if I wasn’t here.”
A source familiar with the negotiations between Stern and Sirius XM tells me that the satellite radio company negotiated a very generous deal with Stern and that he should be satisfied with the contract he signed only a few months ago. And that both Stern and the company agreed they would discuss Stern’s claims to performance-based stock awards after his new deal was closed. But after that happened, the negotiations went nowhere.