It is December, and it is time for many companies to review their existing plans and decide to make some major changes in 2009.  SIRIUS XM Radio Inc. (NASDAQ: SIRI) now stands at a critical juncture, and this is a call which will not come about easily.  It is also a call which may be one of the more controversial calls out there.  It is time for a major change at SIRIUS XM, and that change needs to be the ouster of Mel Karmazin as CEO.

For a backgrounder on criteria, we do not name a CEO with the title of"one who needs to leave" just on share price alone.  This call is alsonot just because the growth ahead will be less than many have hoped andless than what Karmazin had predicted.  The call isn’t evenbased upon the great possibility that even that lowered growth targetmay have to be reduced again.  This is also not personalbecause we have had no dealings with the company nor with Mr.Karmazin.  But there has been serious destruction of investor wealthhere which cannot be ignored.  The onlyrecent investors who have made money are those who sold shares short. 

If you go through the list of 2008 CEO’s to go, almost all of those called out have moved on by now.  If you go through our list of 2007 CEO’s to go, you’ll see that most have hit the road.

Mel was deemed a hero when he came over and was credited as the keyreason that Howard Stern landed at SIRIUS.  So he does deserve a largepart of the credit for the company’s early growth.  But Stern’s massive paypackage came when shareholders were alreadyfeeling a major pinch, and that may have been the first straw puttingpressure on the camel’s back.  That prior success was short-lived and has since turned into a shareholder disaster. 

We predicted the path to merger in late 2006 and even suggested thateither XM head Hugh Panero or Karmazin would go when the new company launches.  Panero was the one who left.  And Mel Karmazin either miscalculated thetime that the merger would take or he just assumed that the mergerwould get approved since every other merger was approved.  You can lookthrough our "satellite" sector and see his comments we have noted overand over on this.  The result was a disaster because the merger took solong and came at such a cost that now the company has some seriousviability issues if it cannot secure ample financing.  The company just wrote off enough value from the XM merger that the current numbers are now almost numbing. 

Mr. Karmazin has been giving far fewer interviews and it seems that hehas been making far fewer public appearances lately.  We noticed in oneof his recent interviews how Mr. Karmazin sounded far less confidentthan in past reports.  At the last earnings report, we were flabbergasted about how the company handled the reporting.

We have commented on market rumors in the recent past about Karmazin possibly taking Sirius private.  It seems that the current LBO/MBO financing is not there for Karmazinto orchestrate this, but if the company does get to effect its reversestock split and then trades off again, then he might be able to pull itoff if the access to capital starts to come more easily.

SIRIUS needs to lock up its key talent and it needs to do so at newmarket rates rather than past rates that are not reflective of thecurrent media climate.  While we think that Karmazin needs to go, ourprediction differs than what we feel should happen.  We think thatKarmazin is on a track to buying enough time until the ability tosecure financial partners is easier, and then he can make his move.Karmazin "may" try to acquire SIRIUS and if that occurs we do notbelieve it will be at anything close to favorable terms for today’sexisting shareholders.

While we do not like to only harp on share prices, the valuedestruction here has been enormous and the efforts from holders toouster the company might actually have a shot at achieving their goalshere.   Michael Hartleib, an individual leading SaveSirius.org andsuing Sirius, offered up comments on this.  He noted specifically,"What’s transpired during Mr. Karmazin’s leadership is nothing morethan criminal and I’d like to remind you of the CNBC piece Mr. Karmazindid entitled "I am American Business" in which he states "the reason Ilike to be the CEO of a publicly traded company is because theshareprice is like a report card."  News Flash Mr. Karmazin…. I andmembers of SaveSirius.org give you a big fat "F" which I guess isappropriate considering the way you ____ us (edited over)." 

Satellite radio is easily considered one of the great consumer productsof today, and therefore we are saying that SIRIUS XM is one of thegreat consumer products.  If the company can implement what we think itwants to implement ahead, then it will be an even greater consumerproduct.  Whether or not a growing army of the unemployed and whether ahorrible auto sales and slower consumer spending market may affect thefuture numbers is not what we hold against Karmazin.  But the factsspeak for themselves, and we think that SIRIUS XM needs to be run bysomeone who is more aligned with its investors of today rather than amanager who did great and then gave it all back and then some. 

In 2004 at the start of the run, the stock did go from $2.00 to almost$8.00.  But after shares broke under $6.00 in 2006 they neverrecovered.  Sirius stock peaked around $4.00 throughout 2007.  Sharesnow sit around $0.20.  So even a 500% gain from here would do littlefor the very long-term investors.  The pure destruction of value herehas just been too great and it seems that the outcome for shareholdersis looking more dire by the week.  Karmazin has already said he wants to pursue a reverse stock split, and our caution to the public here is that reverse stock splits do not have the greatest history after the split is effected.

One important issue in Mel leaving his post is that it might makegetting the financing package more difficult.  An investor might beunwilling to loan the company capital if there is management turmoil.But you could also argue that a new financial package might come withthe stipulation that the backers get to name their own CEO at thehelm. 

While we think that Karmazin should go, we put the odds that hewill leave on his own accord at less than 50%.

Jon C. Ogg
December 1, 2008

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