WSJ Article, "At Sirius Radio, a Dogged Resistance to Liberty Media"...
Sirius XM Radio Inc. SIRI +0.27%Chief Executive Mel Karmazin is so single-minded about the satellite radio broadcaster that on sunny days he walks the dozen blocks from his New York apartment to the office, listening to Sirius programs on headphones.
Not that he's only tuned in to the programs. Mr. Karmazin is focused on "the numbers," said a former Sirius board member. He is "totally preoccupied with the valuation of the company."
That preoccupation has intensified in the past few months, as Mr. Karmazin has publicly battled with Sirius's biggest shareholder, Liberty Media Corp., LMCA +0.12%over its efforts to take control of the company. On Monday, for the second time, Sirius opposed a petition from Liberty to the Federal Communications Commission seeking approval to exercise effective control with its stake of less than 50%.
Sirius contends that Liberty still hadn't taken concrete steps to get control—even though that was an FCC stipulation. Sirius noted to the FCC that while Liberty now has a stake of 46.2%, it hasn't, for instance, "proposed specific nominees" for the board.
"Liberty Media's inaction speaks louder than its words," Sirius said in its filing.
At the heart of the battle appears to be Mr. Karmazin's conviction that Liberty shouldn't get control of Sirius without paying for it. Liberty got its initial 40% stake for virtually nothing—a $12,500 nominal payment included as part of the terms Liberty exacted for rescuing Sirius from financial distress in early 2009 with a package of loans. That stake is now valued at about $5 billion, while the loans were quickly repaid.
"The odds are we will never do a deal as good as Sirius again. Full stop," bragged Liberty Chief Executive Greg Maffei last year. (Liberty recently has agreed to spend $777 million to raise its stake to 46.2%.)
Industry executives, including Mr. Maffei, credit Mr. Karmazin with a turnaround at Sirius since the 2009 episode. After years of losses, it is expected to generate $689 million in cash this year. About 67% of cars come with the Sirius radio service preinstalled, up from 46% in 2008. Over the same period, Sirius's subscriber count was up 15% to 21.9 million.
Mr. Karmazin's relationships with on-air talent have proved valuable. He negotiated new contracts for both Howard Stern and Oprah Winfrey when they expired and signed Martha Stewart.
"Mel has turned in excellent operating and financial results since we invested," said Mr. Maffei in an interview.
Mr. Karmazin, 68 years old, hasn't done too badly himself. In mid-2009, he forfeited stock options he had initially received—exercisable at $4.72, compared with the then stock price of around 35 cents, they were worthless—and was issued with new options now valued at around $170 million. He makes about $10 million a year in salary yet he told Forbes magazine earlier this year, "I think I'm one of the most under paid executives in the history of executive payment."
Mr. Karmazin won't discuss the Liberty situation with The Wall Street Journal. In a brief phone conversation, he also refused to discuss his management, saying "I'm a very boring subject…no one wants to read about me."
Unlike some media executives, Mr. Karmazin isn't a schmoozer. He is usually one of the first people in the office but leaves late in the afternoon, heading home where he often spends the evening with his wife, sometimes reading, according to a person who knows him. A dog lover, he has been donating to the North Shore Animal League shelter on Long Island for the past few years. The shelter says Mr. Karmazin at one time adopted a dog named Kelsey.
His former boss at Viacom Inc., VIAB +1.15%Sumner Redstone, once said Mr. Karmazin showed no interest in having dinner with him. His relations with Liberty executives appear similarly arms-length. Asked about Liberty's founder, John Malone, Mr. Karmazin told shareholders last month "We're not friends…But I've known him for a long time."
About the only cloud on Sirius's horizon—not counting Liberty—is the competitive threat posed by online streaming services, like Pandora and iHeartRadio, a unit of Clear Channel Broadcasting. Mr. Maffei told investors in late May that Liberty would encourage Sirius to make more of a marketing push for its Web technologies.
Publicly, Mr. Karmazin has made clear his view that Liberty should pay a premium to get control. If Liberty wants to acquire more of Sirius, "I will do my best to make sure it's at an extraordinarily high price," he told investors in September 2010. Last month, talking on a conference call with analysts, he said "we are interested in doing what is right for all of our shareholders."
Liberty points out that Mr. Karmazin stands to benefit personally from a higher stock price. "Mel has a ton of incentives to see the stock price go up. He's heavily compensated based on stock options," Mr. Maffei told investors last year. "He thinks independence and distance from Liberty probably helps his stock price…so that's the tension."
Mr. Karmazin recently had a stake of about 2% in Sirius, but he has begun to exercise some options and sell shares under a pre-arranged stock-sale plan that will reduce his holding to about 1%.
Underlying the tension is also Mr. Karmazin's dislike of working for someone else. He told shareholders at the annual meeting last month that he didn't want to work for a controlling shareholder—even if it was Warren Buffett. That attitude echoes the public feud that engulfed Viacom a decade ago when Mr. Karmazin was No. 2 to Mr. Redstone. Mr. Karmazin had come into the company after selling CBS to Viacom, a deal that was unwound after Mr. Karmazin left. But for three years, the two fought over who was in charge. Mr. Karmazin quit in 2004 and shortly afterward joined Sirius.
Whether Mr. Karmazin will have any more success with his Liberty battle is unclear. One lawyer says the outcome was set in the 2009 deal that gave Liberty the 40% block of stock. Sirius has indicated the two sides have held discussions about possible deals: one option is thought to be a spinoff of Liberty's Sirius stock to its shareholders.
Whatever happens, the fight won't drag on for too long. Mr. Karmazin's contract expires at the end of the year.
