Smart Money Interviews Mel Karmazin

Can Mel Put Sirius Back on Top?
By Dyan Machan November 24, 2006, Smart Money

CEO: Mel Karmazin, Sirius Satellite Radio (SIRI)
IT'S MONDAY MORNING, and Mel Karmazin bursts into a glass-enclosed conference room on the 36th floor of Sirius Satellite Radio's Rockefeller Center headquarters. He's a minute early. But it doesn't take long for the white-haired, bushy-eyebrowed media mogul to live up to his reputation as one of America's most aggressive and blunt-speaking chief executives. For one thing, he tells us how much he hates being interviewed. And being photographed? Even more so. Despite once running (before being pushed from) Viacom, which was then the parent of CBS, Karmazin tells us he never liked television. Then he drops a little bombshell: Sure, he'd be interested in merging Sirius (SIRI2) with XM Satellite Radio (XMSR3), his archrival and the market leader in the hotly competitive $1.5 billion industry.
"Mergers often lead to creating shareholder value," Karmazin says. "I've always been open to that." He'd floated the idea at a trade conference that he'd like to buy XM, but he predicted there would be regulatory hurdles. He no longer thinks regulators would pose a problem. A native New Yorker, Karmazin, 63, is a well-known figure in media circles. Many Americans may remember him as the guy who launched shock-jock Howard Stern on satellite radio. But in two years at Sirius, he's also added everyone from Martha Stewart to Nascar to the station's programming, raising the company's profile in the process.
Still, this is an industry facing a lot of static. Once the darling of Wall Street, satellite radio has made headlines for big losses and plummeting share prices. Consumers, it turns out, love their iPods and are sometimes reluctant to renew the $12.95 monthly subscriptions that come with new cars. As Sirius's largest individual shareholder, Karmazin finds himself on the hot seat — and on this day talking (quite bluntly, of course) with senior writer Dyan Machan about his next step.
You've got an avalanche of debt and no earnings. Your bonds are rated CCC — in other words, junk. Why in the world should anyone buy your stock?
It will be higher in the future. This year we will have over $600 million in revenue; next year we will have $1 billion. By 2010 we will have $3 billion in revenue and $1 billion in free cash flow. Using the 15 to 20 times cash flow valuation Wall Street gives growth companies, that's a market value of $15 billion to $20 billion. Today it's $6 billion. The stock will take care of itself. ...read more: HERE

11/24/2006 09:06:00 AM

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