Thursday, January 11, 2007

Bear Stearns Comment On Sirius

January 11, 2006

Bob Peck of Bear Stearns notes on Sirius:

- The significant run up in both names yesterday likely was due to increased investor expectations regarding the potential for a merger. While both companies are trading virtually at parity on an EV basis, share prices in 2007 likely will be driven by two key themes, merger expectations and OEM adoption driving sub growth, in our view. However, the possibility of a merger has likely been the single most important factor impacting valuations recently.

- Although both operators agree that significant synergistic value would be created in a merger, and would be amenable to discussing any offers that would enhance shareholder value, the real questions are on relative valuations that would be acceptable to both shareholders and regulatory approval, both of which could prove to be insurmountable challenges.

- At the CES and other events, both companies discussed the particularly challenging YoY retail comps for 4Q06 and 1Q07. However, Sirius believes that its next leg of growth likely will be from the upcoming launch of NASCAR that will be exclusive to Sirius this year.

- The two companies also disclosed that they had remained disciplined with regard to sub growth during 4Q06. As a result, not only were SAC and CPGA in line with street
expectations and previous guidance, but churn, OEM conversion, and cash flow metrics were
all in line with street expectations.

- While retail will continue to drive innovation, especially for the portable devices and in-home entertainment systems, we believe satellite radio will increasingly become an OEM driven story, with auto shows potentially proving to be more important catalysts in the future. The next important events are the Chicago auto show in early Feb, and the New York auto show in early April.

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1/11/2007 10:05:00 AM

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