Solid Earnings Fuels Concern For SiriusXM Canada Shareholders

Solid quarterly earnings at Sirius XM Canada Holdings Inc. are fuelling minority shareholder concerns that a proposal to take the satellite radio business private low-balls the company’s true value.

The offer of $4.50 per share in cash or stock, first announced in mid-May, has faced pushback from some minority shareholders, who will vote on the proposal at the end of August – which is later than expected.

Late Wednesday, Sirius XM Canada reported third-quarter earnings that were largely in line with or ahead of expectations, including a 3.5 per cent increase in revenue to $86-million and a 3.5 per cent increase in total subscribers to 2.75 million. Earnings were $7.2-million, or 6 cents a share, down 9.3 per cent year-over-year.

The company said it will release an information circular with further details on the proposed transaction no later than Aug. 4, ahead of a minority shareholder vote scheduled for Aug. 30.

Mark Redmond

On a conference call with analysts on Thursday, Mark Redmond, president and CEO of Sirius XM Canada, said the delay has been “all about the complexity of the transaction and nothing more.”

“We are confident that this transaction will maximize value for all stakeholders involved,” Mr. Redmond said, noting that the company’s board of directors and a special committee of the board overseeing the proposal recommend that shareholders approve it.

Sirius XM Canada's shares closed at $4.61 Thursday on the Toronto Stock Exchange. The $4.50 per share offer was calculated as a 22.3-per-cent premium on the company’s Feb. 11 share price, just before The Globe and Mail first reported plans to take the company private at a tentative price of $4.25 per share.

Yet the company’s solid third-quarter results are only adding to frustration among shareholders who feel the company’s offer is unfairly low. Sirius XM Canada reported free cash flow of $12.6-million for the third quarter, raising further questions about its decision to halt dividend payments pending the outcome of the privatization plan.

“Free cash flow is strong, so suspending the dividend was totally unjustified,” said Stephen Takacsy, chief investment officer at Montreal-based Lester Asset Management, which owns nearly a million shares in Sirius XM Canada. “The transaction isn’t done yet and it’s still our company, so public shareholders should still get their dividends.”

Three other institutional shareholders have expressed serious concerns about the deal, including Van Berkom and Associates Inc., a large minority shareholder that thinks the offer undervalues Sirius XM Canada “by a wide margin.”

Under the proposal, two of the largest Canadian shareholders – Slaight Communications Inc., which was built on radio assets, and Obelysk Media Inc., owned by Canadian businessman John Bitove – would each acquire 33.5 per cent of voting shares and 15 per cent of the company’s total equity. SiriusXM Holdings Inc., an American company that owns the SiriusXM brand in the U.S. as well as 32 per cent of the Canadian company, would own the rest of the equity.

The company’s other major shareholder, the Canadian Broadcasting Corp., plans to sell its 12.5-per-cent stake, worth about $58-million at $4.50 a share.

If the transaction is approved, minority shareholders can accept $4.50 per share in cash, or take shares in the U.S. SiriusXM.

Relations between the Canadian Sirius XM and the U.S. parent company have at times been strained, most notably over a year-long dispute over activation fees from subscribers.

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