Sirius XM on defense, but against whom?


Sirius XM announced a “poison pill” stock plan to block anyone from making an unwanted takeover play. But with Liberty Media already holding a 40% stake, just who is Sirius XM CEO Mel Karmazin worried about?  

Liberty’s bailout deal that saved Sirius XM from bankruptcy already contains a standstill provision, so Liberty can’t make a play for 50%-plus control without approval by the Sirius XM board. The “shareholder rights plan” announced by Sirius XM would issue stock rights to all other shareholder should anyone acquire 4.9% or more of the outstanding shares of Sirius XM without board approval. That would effectively dilute the shares of the unwanted suitor by bulking up everyone else.

As with all poison pill plans, the real purpose is to protect entrenched management. Of course, the companies never admit that. So, Sirius XM came up with an unusual explanation for its move. “Our net operating loss carryforwards are an important asset of the Company; an asset that we believe we should make every effort to protect. This rights plan protects the interests of all stockholders and preserves these substantial tax benefits for the Company. The rights plan is intended to enhance stockholder value; it has not been implemented for defensive or anti takeover purposes,” said Karmazin.

The poison pill plan will continue in effect until August 1, 2011, unless earlier terminated or redeemed by the Sirius XM board of directors. The company said it plans to submit the plan to a stockholder vote by June 30, 2010, and if stockholders do not approve the plan by that date it will terminate.

RBR/TVBR observation: Who is Mel afraid of? The obvious answer is Charlie Ergen. But even without the poison pill the potential for Ergen’s EchoStar being able to acquire enough stock to take control is an extreme long shot. Once you exclude the holdings of Liberty, Karmazin and other insiders, Ergen would have to track down and buy just about every other share that exists. That’s a near impossibility.

So, while we generally oppose poison pill plans – which are really the opposite of the effort to protect “shareholder rights” that management always claims they are – this one just seems silly and pointless.