On the Wires: Forbes on XMSR's Latest Shareholder Lawsuit

Faces In The News, Forbes
Panero Faces Latest XM Shareholder Lawsuit
Greg Levine, 07.05.06, 10:56 AM ET

Hugh Panero has more than Mel Karmazin to tangle with. Panero, the chief executive of XM Satellite Radio, helms the industry's market leader: At last count, his orbital broadcaster had 6.5 million subscribers, easily topping the 4 million who've signed up for Karmazin's Sirius Satellite Radio. But at what cost? That's the question posed by the latest lawsuit against Panero's firm.

The Schatz & Nobel law firm issued a press release, saying it launched a class-action suit "on behalf of all persons who purchased or otherwise acquired" XM shares between the expanded period of July 28, 2005 to May 24, 2006. The suit alleges that XM made false statements vis-a-vis its ability to alleviate the costs of building its subscribership. As underdog Sirius prepared for the much-touted January 2006 arrival of blue raconteur Howard Stern, XM supposedly did some prep as well, running up stratospheric marketing costs. A spending spree would have been understandable: even fans of XM's wildly popular Opie and Anthony Show, who generally love to hate Stern, nonetheless seem to talk about him endlessly.

But where there are expenses, there are worried shareholders. And the suit claims that for the period in question, XM management knew darn well it would not reach the 9 million-plus subscribers it predicted for year-end 2006. On May 24, the firm revised its view, calling for 8.5 million subscribers by 2006's end. In a statement, the CEO explained, "growth for the first quarter of 2006 was consistent with our initial guidance of nine million subscribers," but said the rise was mitgated by the industry's "overall softness at retail during the second quarter to date." He also conceded that "we have been later than anticipated with broad availability of our new products." Should Panero sweat? Shatz & Nobel may know a bad thing when it sees it: other shareholder suits on its to-do list include UnitedHealth Group, Comverse Technology and American Tower. But then, a myriad of other law firms have already jumped on the XM bandwagon. Does the latest entrant hope to profit by righting a wrong--or is it merely another financial "ambulance chaser" smelling a wounded corporate antelope?

7/05/2006 02:38:00 PM

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