Thursday, March 24, 2011

Closer Look at Sirius (SIRI) Lawsuit from Stern

By now most everyone that follows the media is well aware that Howard Stern’s production company, One Twelve Productions, and his agent, Don Buchwald have filed a lawsuit against Sirius XM Radio (NASDAQ:SIRI). The suit alleges that Sirius and/or Sirius XM Radio have failed to pay certain performance bonuses due to them based on the company’s subscriber numbers.

There are several factors that Sirius XM investors need to consider…

Immediate Impact

The immediate impact began to show through in after hours trading. This is a potentially HUGE lawsuit, worth hundreds of millions of dollars, brought against the company by one of their top on-air personalities. The stock will likely suffer because of this overhang. This is not uncertainty about whether or not Stern will retire or move to another medium, it is uncertainty with massive financial implications. Watch for an immediate negative impact followed by a period of time where the overhang of such a large suit will degrade investment value.

Class Action Suit
Given the language in the lawsuit, there is serious potential that a class action suit against the company on behalf of the shareholders will come up. Stern’s side alleges in the suit that they brought up the bonus issue several times, including during the recent negotiations when Howard signed a new five year deal. It could be argued that the company breached their duty to shareholders by not bringing to light the significant risks associated with these bonus payments.

Sirius was trading at $1.6550, down $0.014, or 0.84 percent, as of 11:52 AM EDT.







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