Thursday, January 18, 2007

Bear Stearns Upgrade of Sirius

January 18, 2007

Bob Peck of Bear Stearns Upgrade Note:

EV Gap Narrowed and FCC Comments Overblown: Upgrading to
Peer Perform

- We downgraded Sirius in early December (please see our note Sirius: "Downgrading to
Underperform from Outperform" dated December 5, 2006), on the premise that Sirius'
premium of approximately 15% to XM on EV basis was unwarranted, particularly due to Sirius' revised 4Q guidance.

-As the two stocks currently trade virtually at parity, which we think is more reasonable, we think the two stocks likely should trade more in tandem near-term. Further, we believe the two stocks will be driven more in the short term by merger speculation, and Sirius will trade more in-line with its peer; hence, we are upgrading Sirius to Peer Perform.

- Yesterday, Sirius and XM fell significantly based on comments made by FCC Chairman
Kevin Martin at the January 2007 Open Commission Meeting. Based on contacts who are
familiar with exactly what transpired, we believe no incremental information or potential
intention was offered by the\ncomments. Hence, with the citing of the rule 25.118, we believe that Kevin Martin merely acknowledged what has already been widely discussed in the market place. Hence, we think the\nreaction was overdone, providing a better entry point for Sirius.

- We underscore there are significant hurdles for Sirius and XM to overcome should they pursue a merger. However, we believe the short term movement of Sirius' stock price will be more impacted by the mere pursuit of a merger should they attempt one. Lastly, we point out any attempted merger could take up to 12 months to be approved and would still need to pass the DOJ.

- Lastly, yesterday, NPD released its retail market share data for December 2006, indicating continued share gains for Sirius reaching 66% in December.

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1/18/2007 08:47:00 AM

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