Liberty Media Chairman John Malone just consolidated his power at the satellite radio company as four people friendly to his outlook joined the Sirius XM board replacing former CEO Mel Karmazin — who left last month — and three other directors who just resigned. Leon Black, Lawrence Gilberti, and Jack Shaw have left, the company reports this morning. The SEC filing notes that this was “not the result of any disagreement with us on any matter relating to our operations, policies or practices.” They’ve been replaced by Liberty SVP Mark Carleton, Liberty VP Robin Pringle, Liberty General Counsel Charles Tanabe and Sirius XM’s new interim CEO James Meyer. Liberty’s picks now occupy eight of the 12 board seats, Liberty’s control of Sirius XM voting shares crossed the 50% ownership threshold on January 18 after it bought an additional 50M shares, at $3.1556 per share, and converted its preferred stock holdings into 1.29B common shares. It now has 50.21% of Sirius XM. Since it meets NASDAQ’s standards for being a “controlled company,” Sirius XM says that it is “exempt from certain corporate governance requirements” including one that requires a majority of the board members to be independent of management. “The controlled company exemption does not extend to the audit committee independence requirements and we have not made any change to our audit committee at this time,” Sirius XM says.
Now that he has resigned as CEO of Sirius XM, Mel Karmazin says he’d like a new gig — either running an entrepreneurial company with an independent board, or helping New Jersey Gov. Chris Christie’s efforts to rebuild areas hit by Hurricane Sandy. “I would be the czar…or the pope of the Jersey shore,” Karmazin tells CNBC‘s David Faber. That might make for an interesting reality show. But Karmazin, who had a famous falling out with Sumner Redstone, says “I probably wouldn’t take it to Viacom.” Meanwhile he’s upbeat about the satellite radio company’s prospects, even after cars connect with Internet radio.
John Malone’s company expects the handover to take place within 60 days now that the FCC has approved “the transfer of de jure control of Sirius XM to Liberty,” it says. While the news was expected — Liberty already owns nearly 50% of the satellite radio company’s stock — it contributed to a 2% after-hours bump in Sirius XM’s stock on top of the 2% rise to $3.08 during the trading day. This is the highest the shares have been since early 2008, when the debt-laden company’s stock collapsed; Liberty Media’s $530M investment saved it from bankruptcy. Once Liberty takes charge, Sirius XM likely will repurchase about 20% of its shares, including the 10% that Liberty itself bought over the last year or so, Lazard Capital Markets’ Barton Crockett says. Investors also are encouraged by December’s stronger-than-expected auto sales, the chief way Sirius XM connects with new subscribers. The number of light vehicle sales for the year was up 13.4% vs 2011.
UPDATE, 6:56 AM: As interim CEO, Jim Meyer will collect a base salary of $1.3M per year, plus annual bonuses to be determined by the board, in a new contract that runs until October 31, 2013, the company says in an SEC filing. He can retire then, if he wants. And if Sirius XM picks someone else to be CEO then he can leave with “an additional bonus to reflect his contributions.”
PREVIOUS, 6:06 AM: The change takes place today: Mel Karmazin resigned as CEO and from the board, Sirius XM says. With Liberty Media poised to take control of the satellite radio company (it owns 49.8% of the voting shares), Karmazin had already announced that he would leave in February when his contract expires. Jim Meyer, who had been President of Sales and Operations since May 2004, now joins the board. Directors have formed a search committee, led by Liberty CEO Greg Maffei, that will consider “both internal and external candidates, including Mr. Meyer” to take the top job on a more long-term basis, the company says. Lazard Capital Markets’ Barton Crockett notes that “investors have had limited interaction with Meyer.” The exec commutes from Indianapolis; the company pays for his travel expenses and for an apartment in New York. Board Chairman Eddy Hartenstein says that Meyer’s experience should make this “a seamless transition” and thanked Karmazin for his “leadership, strategic vision …
The stock is up more than 2% in early trading with investors more surprised at the timing of the announcement than by the decision itself. The satellite radio company says it will repurchase $2B in stock, with no timetable. Liberty Media, which owns 49.8% of Sirius XM, will participate in a way that ensures the effort doesn’t boost or dilute its stake. In addition, on December 28 Sirius XM will pay a 5 cent-a-share special dividend — about $325M — to those who own the stock on December 18. The general feeling was that Sirius XM would return cash to shareholders soon, but not yet: It’s still negotiating to determine the royalty rates it will have to pay for the music it airs, and looking at candidates to replace CEO Mel Karmazin when he leaves in February. The FCC could formally rule by year end that Liberty owns Sirius XM and its satellite licenses. But a lot of companies, including Disney and Dish Network, are announcing dividends ahead of the end of the year: If lawmakers can’t avoid the so-called fiscal cliff tax and budget measures that take effect in January, then dividends will be taxed at a much higher rate.
Deadline’s Executive Editor David Lieberman talks with host David Bloom in Episode 2 of Deadline Big Media. Lieberman discusses whether Mel Karmazin will stay with satellite broadcaster Sirius XM after Liberty Media completes its acquisition; what impact James Murdoch might have on News Corp’s U.S. TV operations if he takes over, as rumored; and who might be interested in spending up to $7 billion to buy the live-entertainment and sports powerhouse AEG from Denver billionaire Phil Anschutz.
Liberty Media CEO Greg Maffei wasn’t trying to put down Mel Karmazin. ”Mel has done a great job” at the satellite broadcast company, Maffei told the Goldman Sachs Annual Communicopia Conference this morning. But he added that Sirius XM’s colorful chief also can be replaced once Liberty takes control — which could happen any day. “Graves are full of irreplaceable people,” Maffei says. “There are plenty of people who could do a great job…Without Mel the business will not fail.” The answer leaves open one of the key questions investors have about Sirius XM’s fate as Liberty prepares to take over. Liberty reported this week that it owns 49.5% of the stock, and is still buying. Karmazin said last week that he’s “open” to staying at Sirius XM. He added, though, that “my instincts are that Liberty does not need me,” noting that “I have historically been expensive…That’s OK with Mel.” One likely key to any discussion is whether Liberty will hold on to Sirius XM, or plans to spin it off — possibly as part of a tax-saving process known as a Reverse Morris Trust. Maffei was coy on the matter. He says that Liberty will decide later about the Reverse Morris Trust but added that “our history has been eventually to spin off these businesses.” Before anything happens, Liberty will press for Sirius XM to return cash to investors, probably by repurchasing shares. Sirius …
The Sirius XM CEO isn’t sure that John Malone’s Liberty Media will want him to stay after it owns more than 50% of the satellite radio company’s stock — something that could happen as early as today. “My instincts are that Liberty does not need me,” Mel Karmazin said at the Bank of America Merrill Lynch Media, Communications and Entertainment Conference. “I have historically been expensive…That’s OK with Mel.” But he also says that he’s “open to having a conversation” about staying after. For example, if Liberty decides to spin off Sirius XM then “that would be a situation I might be interested in.” Karmazin says there’s been “no dialogue whatsoever about me coming or going,” including with Sirius XM’s existing board. His current contract expires in December. If he signed a new deal while the company’s future is in flux then “it would look [to shareolders] like I sold out.”
A Florida police pension fund is suing Sirius XM Radio Inc’s board of directors for allowing John Malone’s Liberty Media Corp take over the satcaster without a fight and without paying a premium. Reuters reports the City of Miami Police Relief and Pension Fund filed suit in Delaware Chancery Court following Liberty informing the FCC on Friday that Liberty planned to take full control of Sirius XM by increasing its stake to more than 50%. Provisions under which Liberty invested in Sirius XM in 2009 prohibit the company from fighting off a Liberty takeover, and the police pension fund says this constituts a breach of the board’s fiduciary duties. As part of its investment, Liberty loaned Sirius XM $530 million to help the satcaster avoid bankruptcy. Terms of the loan stipulated that Sirius’ board agreed not to adopt a poison pill or any defense measures against a Liberty takeover after a three-year standstill, which expired in March. Since then Liberty has been buying Sirius shares in the open market to boost its stake above 50%.
John Malone’s Liberty Media has increased its stake in Sirius XM Radio to about 48% from 46.2%, the Wall Street Journal reported tonight. Liberty disclosed in an evening filing that it had bought roughly 90 million Sirius shares recently for about $2.50 each or $225 million in total. That and another transaction involving an additional 41 million shares raise Liberty’s effective stake to 48%. Liberty has asked the FCC for permission to take control of the company, but Serious has opposed the application. If Liberty increases its stake to more than 50% it would have clear control of the company, allowing Liberty to replace Sirius management and possibly take other actions such as spinning off the satellite radio broadcaster to Liberty shareholders.
Malone controls shares convertible into more than 40% of the satellite radio company stock — but he’s talking like Sirius XM will soon be his based on news coverage of his comments to reporters at Sun Valley. The Liberty Media Chairman said that he’d “prefer not to lose” Mel Karmazin, but the Sirius XM CEO “said he won’t work for me so what am I supposed to do?” Malone didn’t mind taking a few jabs at Karmazin, though. He says that the former Viacom No. 2 exec — who had a famous falling out with Chairman Sumner Redstone — “needs to go back in history, transport himself back in time, mend his fences with Sumner and go be a new person. Relax, enjoy his success, bask in the glory, and enjoy his job. He does a great job. We love him.” Malone scoffed, though, at Karmazin’s claim that he’s underpaid. “It’s a joke. He’s clearly doing it tongue-and-cheek. He has an enormous equity incentive.” Malone is asking the FCC to give Liberty de facto control over Sirius XM’s broadcast licenses. So it’s interesting that he says he had dinner last night with FCC Chairman Julius Genachowski, although the Liberty chief declined to say what they discussed. If Liberty persuades regulators to recognize Liberty’s de facto control, then “there is no barrier to us having actual hard control.” What then? “There’s no question that eventually Sirius …
The satellite radio company’s shares are up more than 3.6% in pre-market trading this morning after it beat its own projections, and analysts’, for subscriber growth in Q2. Sirius XM says it added 622,042 net subscribers — a 38% improvement from the same period last year when it picked up 452,147. All told, it has gained 1M customers in the first half of 2012, giving it a total of more than 22.9M. The company now expects to end the year with 1.6M new customers, and about $3.4B in revenue. It left unchanged the projection for free cash flow, the metric that CEO Mel Karmazin watches most closely. That stays at $700M. “Our second quarter subscriber gains mark a record quarter of net additions since the merger of Sirius and XM in July 2008,” he says. He attributed the improvement to “our unparalleled programming lineup” in the midst of “a weak US economic outlook.” But last week one analyst, Lazard Capital Markets’ Barton Crockett, predicted that sub numbers would be strong based on the pickup in car sales — one of the main sources of satellite radio customers. Auto sales were up 22.2% in June vs the same month last year, and +2.5% in May. “If new car sales stay near current levels, we see 2M sub adds as possible” this year for Sirius XM, he says this morning.
Sirius XM Says It’s …
The regulatory agency sided with Sirius XM which said that while John Malone’s Liberty might control the satellite radio company one day, it doesn’t do so yet. The proof: Liberty’s application to claim Sirius XM’s broadcast licenses was unacceptable because it was “unable to obtain the passwords, signatures, and other necessary information from Sirius to properly file an electronic transfer of control application,” two FCC officials said in a letter today. Liberty had argued that it already pretty much calls the shots at Sirius by virtue of the preferred stock it bought for $530M in 2009 when Sirius was in danger of defaulting on its debt. The shares can be swapped for 40% of the company’s equity. But the officials noted that Liberty hasn’t demonstrated that it intends to actually make that swap or, if it did, that it could take control of the company board. Sirius XM CEO Mel Karmazin told investors this week that “40 (percent) is not the new 50.”
As expected, Howard Stern’s production company One Twelve and his agent Don Buchwald have appealed a judge’s dismissal of a lawsuit earlier this month against Sirius XM over disputed stock awards from his original contract with the satellite radio company. Judge Barbara Kapnick of the New York State Supreme Court threw out the suit April 17. It claimed Stern’s company and Buchwald were owed more than $300 million after Sirius exceeded subscriber targets following its merger with rival XM. But Kapnick ruled that the contract language “is inconsistent with any reading that the parties intended subscribers acquired by merger with XM to be considered” in awarding stock, calling the disputing wording “clear” and “unambiguous”.
Howard Stern had claimed his employer owned him additional stock awards for exceeding subscriber targets that would have totaled more than $300 million — targets exceeded when Sirius merged with rival XM Satellite Radio. But Judge Barbara Kapnick of the New York State Supreme Court wrote in an order dated Monday that the contract language “is inconsistent with any reading that the parties intended subscribers acquired by merger with XM to be considered.” She called the disputed wording “clear” and “unambiguous”. In the suit filed by his production company and agent against Sirius in March 2011, the company’s highest-profile and highest-paid DJ said the sub gains that resulted when Sirius merged with XM should be counted as part of the math that calculated Stern’s compensation in his original blockbuster five-year, $500 million contract that brought Stern over from terrestrial radio. The lawsuit came three months after Stern signed a new five-year deal to remain at Sirius XM, a move that launched a war of words between Stern and Sirius XM boss Mel Karmazin, who at one point claimed he wasn’t in favor of Stern’s original blockbuster deal in the first place, though Karmazin was plenty happy when Stern landed his high-profile judging gig on NBC’s America’s Got Talent.
Shareholders probably won’t begrudge him the increase in a year when the satellite radio company’s market value appreciated 13%. Karmazin’s package is pretty simple: $1.5M salary, $9.2M bonus, and $7,350 for other compensation. The Sirius XM proxy says that it awarded Karmazin his bonus to recognize, among other things, the growth in subscriptions, revenues, and cash flow — and the reduction in the company’s debt. The CEO’s pay amounted to 23% of the pie for the company’s six named executives, and is 1.5 times higher than the average for his colleagues — well below the level that would concern corporate governance activists. But the numbers are somewhat skewed because Karmazin wasn’t the company’s highest paid exec: CFO David Frear’s package came to $20.8M, up nearly 520%. That’s almost entirely due to $18.9M in option awards granted in July. Sirius XM will hold its annual meeting in New York on May 22.
The only thing riskier than being an enemy of Liberty Media’s John Malone is to be his friend — as Sirius XM’s Mel Karmazin is discovering. They developed a corporate bromance in 2009 when Malone rescued the satellite radio company as it struggled to keep up with its debt payments: Liberty invested $530M, and received preferred stock convertible into 40% of Sirius’ voting shares. But Sirius has just disclosed that Malone quietly asked the FCC this month to give his company — in Liberty’s words — “de facto control of Sirius XM Radio Inc.’s earth station licenses.” It seems that Malone, one of the media industry’s toughest negotiators, believes Liberty is entitled to take charge with the March 6 expiration of some conditions in the 2009 agreement that limited its ability to buy additional Sirius shares. Liberty’s filing set off alarm bells in Karmazin’s shop. Late Friday, Sirius asked the FCC to dismiss or deny Liberty’s petition. The satellite company says that Liberty’s application has technical problems that should disqualify it — and it’s about corporate governance, not a matter for the FCC. But just in case the FCC wants to take on the matter, Sirius says that Liberty is wrong about the investment agreement. It only entitles Malone to pick five of the 13 board members, not a majority. And although conditions barring Liberty from buying additional shares have expired, it hasn’t bought them yet. “Liberty Media now can seek to control the management, …
Earlier this month Sirius XM CEO Mel Karmazin crowed that “things have been great” at the satellite radio company. Its stock is up 23% so far in 2012 and “our free cash flow is growing, it’s extraordinary,” he told CNBC’s Jim Cramer. But Sirius sings a different tune in a new lawsuit that accuses SoundExchange — a clearinghouse authorized by Congress to handle music artists’ royalty payments – and the American Association of Independent Music, a trade group, of leading an “industrywide conspiracy” to raise the fees Sirius pays to air recorded music. The groups’ “unlawful conduct” has “significantly raised Sirius XM’s costs, (and) threatened the viability of its business model in a highly competitive and technologically volatile sector of the entertainment market,” it just told the U.S. District Court in New York. Last year the company spent nearly $200M for royalties to play recordings on the 71 of its more than 135 channels that feature commercial-free music. The fees were set by the government’s Copyright Royalty Board (CRB) in a license that expires this year. Sirius says that SoundExchange has asked CRB to more than double its rates — to a maximum of 20% of the satellite radio company’s gross revenues — for a new license that would run through 2017. Although Sirius acknowledges that it’s growing, it “is far from recovering the enormous capital investment (to build the service) and is just at the point where it it beginning to earn a small profit on its investment.”
The trading day ended with a thud. The benchmark Standard & Poor’s 500 wound up -2.1% as word spread that Germany might balk at a proposal to help bail out debt-laden members of the European Union including Greece and Portugal. That affected media stocks; the Dow Jones U.S. Media Index fell 3%. Disney was the hardest hit among the Big Guns, with shares off 3.2%. It was followed by News Corp (-3.1%), CBS (-3%), Comcast (-2.9%), Time Warner (-2.7%), Viacom (-2.3%), and Sony (-2.1%). Newspaper companies were big losers led by McClatchy (-10%), New York Times (-7.3%), E.W. Scripps (-6.5%), and Gannett (-6.3%). But others weren’t far behind: Cablevision (-6.1%) hit a 52-week low. The losers list also included Crown Media (-6.6%), AOL (-5.9%), DirecTV (-4.7%), Live Nation (-4.4%), Barnes & Noble (-4.3%), TiVo (-4.2%), Sirius XM (-4.2%) and Dish Network (-4.2%). Today’s few gainers were led by Coinstar, up 7.8% on a report that its Redbox unit will team up with Verizon to offer an online video service. Martha Stewart Living Omnimedia was up 1.7% the day after J.C. Penney said it bought 16.6% of the company. And Madison Square Garden was up 1.7%, hitting a 52-week high, after Morgan Stanley’s Benjamin Swinburne changed his recommendation to “overweight” from “underweight” following the resolution of the NBA lockout.