Liberty Media + Sirius: Perfect Together

by Jonathan Berr | August 22, 2012 12:11 pm

Liberty Media + Sirius: Perfect Together

Liberty Media (NASDAQ:LNTA[1]) Chairman John C. Malone[2], who is trying to wrest control of Sirius XM Radio (NASDAQ:SIRI[3]), will probably will find it much easier to do — and cheaper — if he can retain the satellite radio provider’s CEO Mel Karmazin after a takeover.

Were Karmazin to leave the company because of a change in control in Sirius’ ownership, he could receive a payoff topping $83 million, more than the 2011 total compensation of Viacom (NYSE:VIA[4]) head Philippe Daumann ($43 million), Walt Disney (NYSE:DIS[5]) CEO Robert Iger ($31.4 million) and Time Warner’s (NYSE:TWX[6]) Jeff Bewkes ($25.9 million). Karmazin, CEO since 2004, earned $10.7 million in total compensation in 2011, including a $9.2 million bonus.

Unless he becomes a CEO of a major media conglomerate, Karmazin, who is synonymous with Sirius, wouldn’t be able to find a deal as good as his exit pay from Sirius.

According to the company’s proxy[7], Karmazin owns about 69 million shares of Sirius, about 1.8% of the common shares. His employment agreement expires at the end if the year, and he knows if he leaves, those shares’ value would plummet. The loquacious CEO, who has repeatedly said he doesn’t like working for bosses since he had a run-in with Sumner Redstone, under whom he worked at Viacom, is changing his tune when it comes to Liberty.

“I can assure you that our Board and I are interested in trying to accomplish whatever Liberty wants to do as long as it’s in all of our shareholders’ best interests and that there is no issue involving Mel that has anything to do with the current conversations with Liberty at all,” Karmazin said during the recent earnings conference call.[8] ”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.”

Neither Malone nor Liberty Media CEO Gregory Maffei has the expertise or the patience to run Sirius. Karmazin has forgotten more about the broadcasting business than most executives have learned. Liberty operates as a holding company, and Malone and Maffei normally prefer to leave operational details to others. They know that their 2009 investment in Sirius wouldn’t have paid off under another CEO.

Under Karmazin’s leadership, Sirius added more than 1.7 million new net subscribers[9] in 2011 and reduced debt so much that both Standard & Poors and Moody’s raised their ratings on the company’s debt because of its improving liquidity position. Howard Stern, one of Sirius’ biggest stars, may not have signed with Sirius if he hadn’t known Karmazin from his decades in terrestrial radio. The same holds for other high-profile talent including Oprah Winfrey and Martha Stewart.

Short sellers have targeted Sirius for years because of worries about competition from rivals such as Pandora Media (NYSE:P[10]) to Stern’s high-profile lawsuit against Sirius XM, which is on appeal following a victory for the satellite radio provider[11]. U.S. automaker sales[12], a key Sirius market[13], have sputtered in recent months. But many on Wall Street think the news is factored into SIRI.

The shares, which have surged more than 40% this year, recently traded at $2.59, the average 52-week price target of Wall Street analysts. Investors have prematurely written-off Sirius many times before.

Though the marriage between Liberty Media and Karmazin would be one of convenience, it would certainly benefit shareholders.

Jonathan Berr does not own shares of the listed companies. Follow him on Twitter @jdberr.

Endnotes:
  1. LNTA: http://studio-5.financialcontent.com/investplace/quote?Symbol=LNTA
  2. Chairman John C. Malone: http://investorplace.com/2012/08/liberty-media-says-give-me-sirius/
  3. SIRI: http://studio-5.financialcontent.com/investplace/quote?Symbol=SIRI
  4. VIA: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIA
  5. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  6. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX
  7. the company’s proxy: http://sec.gov/Archives/edgar/data/908937/000119312512159007/d323930ddef14a.htm#tx323930_38
  8. Karmazin said during the recent earnings conference call.: http://seekingalpha.com/article/788101-sirius-xm-radio-s-ceo-discusses-q2-2012-results-earnings-call-transcript?page=6&p=qanda&l=last
  9. Sirius added more than 1.7 million new net subscribers: http://investorplace.com/2012/08/siriusxm-is-well-worth-tuning-into-today-vz-t-f-hmc-aapl-goog-siri/
  10. P: http://studio-5.financialcontent.com/investplace/quote?Symbol=P
  11. satellite radio provider: http://www.hollywoodreporter.com/thr-esq/howard-stern-sirius-radio-lawsuit-317497
  12. automaker sales: http://www.bloomberg.com/news/2012-07-02/auto-sales-stall-with-500-000-cut-from-2013-u-s-outlook.html
  13. key Sirius market: http://investorplace.com/2012/08/internet-radio-owns-the-home-but-sirius-rules-the-road/

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