Sirius Faces Stockholder Lawsuit, Debt Issues in 2009
By Jeffrey Hill | November 4, 2008
[Satellite News 11-04-08] Sirius XM Satellite Radio has been sued by Save Sirius, a group formed by 500 shareholders of the formerly independent Sirius Satellite Radio.
The group charges top Sirius executives, including CEO Mel Karmazin, of intentionally sabotaging Sirius stock to purchase it privately at a low price, a violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act, as well as the Fiduciary Duty and Sherman Act.
Save Sirius spokesman Michael Hartlieb asserts that Sirius shareholders have lost more than 90 percent of their value under Karmazin’s management. “We are working to gain control of our company by seeking to remove current members of the board as well as top executive Mel Karmazin,” said Hartlieb in a company statement.
From its peak of around $7.70 per share in late 2004, the stock price of Sirius declined 95 percent to 31 cents per share in early November 2008.
Save Sirius contends that Sirius XM "locked their shareholders into the longest merger delay in history; preventing the corporation from seeking alternatives or potential suitors; failing to commercially introduce interoperable radios; insisting on going forward with the merger at any and all costs; and consummating the merger, issuing 300 million shares to the financiers of XM Satellite Radio‘s debt to be sold short on the open market," according to a public statement made after filing the suit.
Hartleib, who was a vocal opponent of the merger between Sirius and XM Satellite Radio, said he had invested more than $100,000 in Sirius and feared that the company’s post-merger share value would drop to the point where it would be “almost worthless and easy for a large investor to swoop up and take the company private.”
Hartleib added that Save Sirius will take the case as far as possible. “We, as a group, will not stand for this and will use any means possible to prevent and preclude them from stealing this company from its rightful owners, the shareholders," he said.
XM has also had its share of stockholder issues.
A group of XM investors filed a lawsuit against XM CEO Hugh Panero and four other XM executives in May 2006 over the sale of $79 million of stock in 2005.
Panero and fellow executives were accused of falsifying its forecasts of overall subscriptions and the average cost of new subscriber acquisition to inflate stock prices in the six-month period before they sold their privately owned stock. A federal judge dismissed that case in March 2007.
XM Sirius could not be reached for comment.
Sirius XM Third Quarter Report May Show Loss
Merrill Lynch analyst Jessica Reif Cohen issued a critical report Nov. 4 on Sirius XM Radio, which shows that declining auto sales for 2008 and 2009 appear to be troubling for the satellite radio company as the OEM channel has been an integral part of the growth of satellite radio.
Cohen lowered her projections on subscribers with a list of factors including September’s broad decline in US retail, the lowest in 3 years, Best Buy posting lower than expected electronics sales and the credit crisis.
Cohen said she expects XM Sirius to use equity to save its balance sheet.
“Given illiquidity of the high yield and levered loan market, CEO Mel Karmazin has been obligated to use [the company’s] equity through debt swaps to take out pending maturities. The primary benefit is the extension of optionality to the extent a restructuring or bankruptcy is averted, however, it comes at the cost of dilution.”
While she maintains the stock will underperform, Cohen said that “if the company is successful in renegotiating its debt, and should auto sales turn around, then, and perhaps only then will the analysts on the street sing a new tune.”
XM Sirius has three debt repayment milestones in 2009: A $300 million Sirius convertible due in February, $350 million in XM bank debt must be repaid in May and a $400 million XM convertible is due in December.
The group charges top Sirius executives, including CEO Mel Karmazin, of intentionally sabotaging Sirius stock to purchase it privately at a low price, a violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act, as well as the Fiduciary Duty and Sherman Act.
Save Sirius spokesman Michael Hartlieb asserts that Sirius shareholders have lost more than 90 percent of their value under Karmazin’s management. “We are working to gain control of our company by seeking to remove current members of the board as well as top executive Mel Karmazin,” said Hartlieb in a company statement.
From its peak of around $7.70 per share in late 2004, the stock price of Sirius declined 95 percent to 31 cents per share in early November 2008.
Save Sirius contends that Sirius XM "locked their shareholders into the longest merger delay in history; preventing the corporation from seeking alternatives or potential suitors; failing to commercially introduce interoperable radios; insisting on going forward with the merger at any and all costs; and consummating the merger, issuing 300 million shares to the financiers of XM Satellite Radio‘s debt to be sold short on the open market," according to a public statement made after filing the suit.
Hartleib, who was a vocal opponent of the merger between Sirius and XM Satellite Radio, said he had invested more than $100,000 in Sirius and feared that the company’s post-merger share value would drop to the point where it would be “almost worthless and easy for a large investor to swoop up and take the company private.”
Hartleib added that Save Sirius will take the case as far as possible. “We, as a group, will not stand for this and will use any means possible to prevent and preclude them from stealing this company from its rightful owners, the shareholders," he said.
XM has also had its share of stockholder issues.
A group of XM investors filed a lawsuit against XM CEO Hugh Panero and four other XM executives in May 2006 over the sale of $79 million of stock in 2005.
Panero and fellow executives were accused of falsifying its forecasts of overall subscriptions and the average cost of new subscriber acquisition to inflate stock prices in the six-month period before they sold their privately owned stock. A federal judge dismissed that case in March 2007.
XM Sirius could not be reached for comment.
Sirius XM Third Quarter Report May Show Loss
Merrill Lynch analyst Jessica Reif Cohen issued a critical report Nov. 4 on Sirius XM Radio, which shows that declining auto sales for 2008 and 2009 appear to be troubling for the satellite radio company as the OEM channel has been an integral part of the growth of satellite radio.
Cohen lowered her projections on subscribers with a list of factors including September’s broad decline in US retail, the lowest in 3 years, Best Buy posting lower than expected electronics sales and the credit crisis.
Cohen said she expects XM Sirius to use equity to save its balance sheet.
“Given illiquidity of the high yield and levered loan market, CEO Mel Karmazin has been obligated to use [the company’s] equity through debt swaps to take out pending maturities. The primary benefit is the extension of optionality to the extent a restructuring or bankruptcy is averted, however, it comes at the cost of dilution.”
While she maintains the stock will underperform, Cohen said that “if the company is successful in renegotiating its debt, and should auto sales turn around, then, and perhaps only then will the analysts on the street sing a new tune.”
XM Sirius has three debt repayment milestones in 2009: A $300 million Sirius convertible due in February, $350 million in XM bank debt must be repaid in May and a $400 million XM convertible is due in December.