Thursday, November 30, 2006

Jacoby Sees Merger As Possible

November 30, 2006

In a flash note that has not yet been picked up by the Forbes.coms of the world, BOA analyst J. Jacoby comments on the likelihood of a merger between Sirius and XM.

Report Excerpts

Radio & TV Broadcasting FCC Trip Highlights for Broadcast Sector - Potential for Sat Radio Deal StillUnclear The following are key takeaways for broadcasting investors from the 11/29/06 meetings with the FCC hosted by Banc of America Securities:

There does not appear to be a consensus yet on whether the FCC likely would approve an XMSR/SIRI merger - the probability of success seems higher than we previously had thought.

Representatives from the office of Democratic FCC commissioner Jonayhan Adelstein indicated that the public is well served with the current set up of two competitors. The representatives did appear toacknowledge that the financial success of the two operators could be a key factor in a decision

A lawyer in attendance at the meeting with extensive experience regarding FCC matters expressed the opposite view - he believes that such amerger would get the necessary three votes as satellite radio likely would be viewed as just one piece of a broader market for the distribution of music. But he also acknowledged that approval becomes slightly more difficult with aDemocratic controlled Congress and even more difficult with a Democratic WhiteHouse.

Our view - the upcoming 2008 presidential election could pressure Sirius and XM to reach a potential merger agreement within the next twelve months IF there is mutual interest (given the time required to obtain the necessaryregulatory approvals). Interestingly, a failure to achieve positive FCF in 07 ultimately could benefit both companies if it makes a merger more palatable to regulators. However, we believe that XM could be resistant given that its enterprise value remains roughly 20% smaller that Sirius\ despite a stronger position in the increasingly important OEM channel (i.e., XM might see itself as the acquirer ) and the NAB likely would lobby heavily against a combo.

11/30/2006 11:57:00 AM

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