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Sirius XM CEO Plans To Sell Stock: What Investors Should Know

With the news that Sirius XM (SIRI) CEO Mel Karmazin has adopted a trading plan for shares of the company's stock in accordance with Rule 10b5-1 of the Securities and Exchange Act of 1934. I've begun to receive email and tweets asking the question, what does it mean?


According to the article, Mel's pre-planned sales are part of a strategy for financial planning in connection with his philanthropic efforts. The transactions are set to start this coming April where he will first exercise 60 million options which he will then sell to cover the price to exercise the options. At which point he will sell the remaining shares at market price for profit. To be fair, Mel will still own almost 70 million shares as well as options of the company. But at the end of the day, those were his shares and his right to earn a profit.


Maybe it does not mean anything at all and simply implies what Mel intends to do and the direction of his focus. Many have speculated that he plans to retire at the end of the year. This news somewhat lends credence to that theory. But anytime an insider sells stock of the company on the open market, it tends to raise a red flag with astute investors - where it is typically look upon as a negative. Even to the extent where some may completely ignore certain attributes of the transaction and focus solely on the fact that it took place.

To be perfectly fair, I don't think this transaction by Mel makes Sirius more or less favorable of an investment than it was yesterday. In this case, Mel's enactment of the Rule 10b5-1 suggests that the sales will be systematically pre-arranged and continue at regular intervals where it is not perceived by investors as an underlying reason to be cautious about the stock. This news will allow investors to be aware of and understand that Mel is simply opting to either diversify or as the article notes, a part of a strategy for financial planning in connection with his philanthropic efforts. I say good for him.


For Sirius to succeed, it needs to put its eye back on the ball and realize that unless it adapts, there will be no such thing as subscriber growth as it will eventually flatten and the company will assume the same fate as newspapers and magazines. As a reader recently noted, if the company believes in the product and respected consumers why have they not developed a marketing plan to address the needs of entertainment and consumers as a way to capture a broader spectrum of subscribers? Instead the company has been on a mission to cut costs on content - yet we continue to say "content is king." As I've said before, Sirius XM needs to wake up - and more importantly, so do Sirius XM investors.
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