Bear Stearns on XM Q1
 April 23, 2007 Peck notes on XM Satellite Radio: Looking Forward to 2H
Investment Thesis. Both satellite radio stocks have declined significantly since they announced the agreement to merge as the merger outcome remains uncertain and visibility on the merger process (especially at the more important DOJ level) remains limited and the retail environment remains challenging even as the OEMs are likely to pick up speed only towards 2H07 and going into 2008. While OEM will determine LT valuations, NT retail outlook remains tepid. As such, we think investor interest remains limited until there is more visibility into either the merger outcome or the YoY unit sales comps improve.
1Q07 Preview. We are tweaking our 1Q estimates given that the retail environment continues to remain challenged and the OEM contribution would become more meaningful in 2H.
Sub Adds. We are reducing gross sub adds from the retail channel to 387k, which implies a decline of 25% from the 516k levels in the year ago period, likely a reflection of the both the market environment that remains challenging as well as the fact that NASCAR transitioned to Sirius this year. From the OEM channels, we expect 569k gross adds, up about 15% YoY from the 491k level in 1Q06. In aggregate, we are projecting 957k gross adds during the quarter. We are reducing our estimate of net sub adds to 285k from 375k, which is in line with street consensus of 280-290k.
Financials. We are projecting total revenues of $264 mn, which remains virtually unchanged, and is in line with consensus. For Adjusted EBITDA, our estimate of $(27) mn is in line with consensus. On the call, we expect the company to discuss the accounting impact of merger related costs, on which XM had limited visibility when it had reported year-end 2006 results. Labels: bear stearns, q1 2007, xm 4/23/2007 09:50:00 AM
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Bear Stearns On Sirius
 April 23, 2007 Bob Peck of Bear Sterns published a preview note on Sirius: Sirius Satellite RadioLooking Forward to 2H; Street Growth Ests for 1Q Conservative Investment Thesis. Both satellite radio stocks have declined significantly since they announced the agreement to merge as the merger outcome remains uncertain and visibility on the merger process (especially at the more important DOJ level) remains limited and the retail environment remains challenging even as the OEMs are likely to pick up speed only towards 2H07 and going into 2008. While OEM will determine LT valuations, NT retail outlook remains tepid. As such, we think investor interest remains limited until there is more visibility into either the merger outcome or the YoY sales comps improve. 1Q07 Preview. Conf call scheduled for 5/1 at 8 ET at www.Sirius.com. We are tweaking our 1Q estimates marginally; key changes include the following: Gross Sub Adds. We are tweaking gross sub adds from the retail channel to 472k, down ~30%YoY from 659k in 1Q06, likely a reflection of the market environment that remains challenging for both the satellite radio operators, and tough YoY comps to the Howard Stern transition last year, although offset by the NASCAR transition to Sirius this year. Note, our similar YoY decline in gross adds from the retail channel for XM was 25%. From the OEM channels, we expect 501k gross adds, up about 65% YoY from the 302k level in 1Q06. In aggregate, we are projecting 973k gross adds during the quarter. Net Sub Adds HIGHER than Consensus. We are maintaining our net sub adds estimate of 546k, which is higher than street consensus of about 500k, based primarily on the expectation that the street has failed to incorporate the positive impact of the NASCAR transition. We are tweaking up churn to 2.3% from 2.2% previously, reflecting the one-year anniversary of Howard Stern, and higher potential churn from OEM. Financials. We are marginally reducing SAC est to $107, and CPGA to $141, as the company transitions to the next gen chipsets. We are projecting revenues and adjusted EBITDA of $220 mn and $(80) mn, respectively. Labels: bear stearns, q1 2007 4/23/2007 09:44:00 AM
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Bear Stearns Note
April 13, 2007 Peck noted the following after the DOJ second request and the Imus situation: Report excerpts: DOJ Second Request as Expected; Imus in Play?Bear Stearns - 13 April 2007 · Second Request, as Expected.XM and Sirius disclosed that they had received the "Second Request" from the Department of Justice. While this request for additional information was expected, the DOJ/FTC exercise significant restraint in issuing second requests. Between 1998 and 2005, according to the "Announcement of Federal Trade Commission Chairman Deborah Platt Majoras On Reforms to the Merger Review Process" dated February 16, 2006, the agencies issued second requests at an annual rate of between 2% and 4.1% of the total number of reportable transactions. From 1998 to 2005, the annual percentage of second request investigations by the FTC that resulted in some type of enforcement action (that includes transactions that resulted in consent decree or restructuring as well as a very small percentage that were challenged) ranged from 44% to 78%. · Imus on Satellite Radio?Business Week reported that CBS fired Don Imus after some of his recent comments raised a furor. Time Magazine once named Imus, who was aired on 61 radio stations, as one of the 25 Most Influential People in America, and he was a member of the National Broadcaster Hall of Fame. We think satellite radio is one of the options that would be available to Imus. · Compensation May be Limited.We think that the compensation levels for Imus may be significantly smaller than Stern's. The Business Week report stated that Imus contributed about $15 million in annual revenues to CBS. Howard Stern, on the other hand, accounted for an estimated $95 million in annual revenues and about $50 million in EBITDA. While Stern was paid the equivalent of 5x Revenue contribution for the 5-year contract, we believe he got a premium because (i) he could "make or break" the business model, and (ii) the economic/competitive environment was different then. Labels: bear stearns, doj, imus, merger, sirius, xm 4/13/2007 10:10:00 AM
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Interesting Comments In Bob Peck Peck Report
March 23, 2007 Bob Peck issued a report prior to a Bear stearns conference call in which a debate about the merger was conducted. The report is very interesting, but perhaps the most interesting point in the report was this: With Confidence in Merits We Believe The Merger Will Likely Be Approved(bolded sections were underlined in the report) "After attending our 3rd satellite radio hearing in DC, reviewing the recent filings, speaking with various legal and political contacts, and working through the merits of the merger proposal, we believe the proposed merger is likely to pass regulatory hurdles with appropriate concessions. We underscore though that if political forces are more powerful than the merits of the deal, the outcome may be different. However, our sense is that the deal will be judged on merits and is therefore likiely to pass. Our opinion is in fact a vote of confidence in the FCC and DOJ, who we believe will base their decisions on what's best for consumers and the American public."Labels: bear stearns, bob peck, doj, fcc, merger, sirius, xm 3/23/2007 08:10:00 PM
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Bear Sterns Issues Report
 March 8, 2007 Bob Peck, of Bear Stearns, issued a report subsequent to yesterdays testimony, Martin’s presentation at their conference as well as XM’s presentation. Report Excerpts:
First and Ten (Months That Is) -- Part II
In the second hearing at the Congress where satellite radio merger was a key issue, the House Subcommittee on Telecommunications and the Internet held its hearing into “The Digital Future of the United States: Part II - The Future of Radio” yesterday. While the process of analyzing the proposed merger began last week, the current rounds likely will prove to be just the the beginning of a long process of Congressional, Department of Justice and FCC review.
In the hearing, witnesses included Mel Karmazin, CEO of Sirius, Peter Smyth of Greater Media, who was representing the NAB, Geoffrey Blackwell, who discussed issues related to minorities, Robert Kimball of Real Networks, and Gene Kimmelman of the Consumer Union. In its memorandum, the Subcommittee outlined its objective as “the purpose of this hearing will be to assess the state of the competition and innovations in radio services and explore issues of public policy in this market.”
While each witness gave their point on the proposed merger, Mr Karmazin emphasized that they had 2 main obligations: 1) Prove a merger is not anticompetitive and 2) prove a merger would be in consumers best interest. Many times he stated that he was willing to give concessions and insisted DARS was committed to not raising prices.
FCC Chairman Kevin Martin Keynoted at our Media Conference. While the FCC has not yet received a formal application from the companies, Chairman Martin stated that the key issue would be defining the market. Concessions would depend on the harms identified. While the FCC would be serious about enforcing rules, past infractions do not necessarily have “character implications.”
We think the process has merely begun (there is another Hearing next week before the same Subcommittee where the FCC Commissioners would be testifying). It will be a long road and potentially uphill climb; further, we believe that if a deal were ultimately approved, it would likely have multiple concessions.
Labels: bear stearns, kevin martin, merger, sirius, xm 3/08/2007 10:19:00 AM
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Tuesday, February 20, 2007 Analyst Call Of The Week: Robert Peck Of Bear Stearns
Congratulations, Robert Peck, for your timely "rekindling" of "merger chatter" Bear Stearns Rekindles XM/Sirius Merger ChatterPosted on Feb 16th, 2007 with stocks: SIRI, XMSR...read more: hereLabels: bear stearns, merger, siri, xm 2/20/2007 07:26:00 AM
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Saturday, February 17, 2007 BusinessWeek Picks Up Bear Stearns' Merger Report
Analyst to XM, Sirius: Quit QuibblingA Bear Stearns analyst says merger talks between the satellite radio operators are hung up on control issues, not regulatory hurdles by Sonja Ryst , www.businessweek.comFederal regulators aren't likely to block a combination of the nation's two satellite radio operators, XM and Sirius, but disagreement over how to split control of a combined company is probably slowing matters, a Bear Stearns ( BSC) analyst wrote Feb. 16, urging the companies' shareholders to press the issue. In other words, enough with the quibbling and just work it out, analyst Robert Peck suggested in a widely read report that sent XM Satellite Radio ( XMSR) shares surging 7.7%, to $13.98 on the Nasdaq. Shares of rival Sirius Satellite Radio Holdings ( SIRI) gained 2.8%, to $3.70, just above their 52-week low of $3.50, reached late last year...read more: hereLabels: bear stearns, businessweek, merger, sirius, xm 2/17/2007 08:02:00 AM
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Friday, February 16, 2007 Another Merger Note Creates Deeper Confusion
February 16, 2007 Bob Peck of Bear Stearns issued a note today regarding a merer, and once again, there seems to be some confusion over how these comapnies would be valued in the event of a merger. The most common error made is when investors look at Market Cap rather than Enterprise Value. Enterprise Value is a far better metric when it comnes to company valuations because it considers many factors that market cap does not consider. So what is Enterprise Value, and why is it a more accurate measure of the value of a company?? Enterprise Value is a figure that theoretically represents the entire cost of a company if someone were to acquire it. Enterprise Value includes a number of important factors such a s debt, preferred stock and cash reserves. Market Cap does not take these important metrics into consideration. Enterprise Value is calculated by adding a company's :Market CapitalizationPreferred StockOutstanding Debt Then Subtracting:Cash Cash Equivalents from the balance sheetSimply stated, Enterprise Value is what it would cost to buy a company’s shares of common stock, preferred stock, and outstanding debt. Basically, investors need to look at the Enterprise Value of these companies as they try to consider various merger situations. Labels: bear stearns, bob peck, enerprise value, market cap, merger, sirius, xm 2/16/2007 08:45:00 PM
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A Deeper Look At The Bear Stearns Report
February 16, 2007 No Time for Quibbling; 60% of $0 = ZERO We think that both XM and Sirius believe a proposed merger could likely pass the regulatory hurdles, which we think would push them to attempt a merger. However, beyond the initial warming public comments made by both companies in early January, the public potential deal talk has slowed, hampering both share prices (XM is down ~25% since its recent highs and Sirius is close to 52 week lows). We believe any public progress of making a deal has been slowed by the economics of the exact split in a MergeCo. However, we think that the sheer value proposition of a potential deal for both sets of shareholders vastly overshadows any disappointment in share of MergeCo. Due to a closing window of opportunity (based on how long we think it would comfortably take to close a potential deal), we think investors would implore the boards of both companies to avoid quibbling over a few share points, to capture the much larger value of overall potential synergies. This would maximize shareholder value for both companies. We provide a sensitivity of potential value accretion to XM shareholders based on the split of MergeCo which we center around ~55% for XM Radio. We believe both sides would argue a higher percentage in any potential deal, but feel this center point is appropriate given the estimates in our model. Currently, Sirius has >50% of the industry EV, which we think is driven by differences to our model that we outline in this note. We think that upon the expectation of a successful deal, the ~$6-7B in synergies would take the value of XM's stock to ~$25, presenting significant upside potential. Hence we think both sets of shareholders would benefit greatly upon a deal. With XM trading at a lower percent of industry EV, we think the stock will Outperform and recommend investors buy pre any potential announcement. Labels: bear stearns, merger, peck, sirius, xm 2/16/2007 10:45:00 AM
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Bear Stearns: Proposed Merger Might Pass Regulatory Hurdles
Bear Stearns Rekindles XM/Sirius Merger Chatter
Posted on Feb 16th, 2007 with stocks: SIRI, XMSR Notable Calls submits: Bear Stearns out with an interesting note, saying that they think both XM Satellite (NASDAQ:XMSR) and Sirius (NASDAQ:SIRI) believe a proposed merger could likely pass the regulatory hurdles, which they think would push them to attempt a merger. However, beyond the initial warming public comments made by both companies in early January, the public potential deal talk has slowed, hampering both share prices (XM is down ~25% since its recent highs and Sirius is close to 52 week lows). Firm believes any public progress of making a deal has been slowed by the economics of the exact split in a merged company. However, they think that the sheer value proposition of a potential deal for both sets of shareholders vastly overshadows any disappointment in share of a merged company. Due to a closing window of opportunity (based on how long we think it would comfortably take to close a potential deal), firm thinks investors would implore the boards of both companies to avoid quibbling over a few share points, to capture the much larger value of overall potential synergies. This would maximize shareholder value for both companies... continued
Labels: bear stearns, merger, sirius, xm 2/16/2007 07:48:00 AM
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Tuesday, January 23, 2007 Bear stearns Issues Note On Potential Merger
 January 23, 2007 Bear Stearns' Bob Peck, a highly respected analyst in the satellite radio sector, issued a note this morning estimating merger synergies and establishing 2007 EOY subscriber levels. Key points of the report are as follows:
$6.7B in Synergies. With anticipation building that the DARS companies may be getting closer to an attempted merger, we wanted to quantify what the value of a MergeCo could be. In taking several simplifying and sometimes conservative assumptions, we believe the NPV of savings / synergies could reach $6.7B.
No Major Rev Benefits.
- Our assumptions conservatively include no revenue from additional services benefits, as we believe that MergeCo would need to operate both satellite systems for the near term to avoid shutting off one system's subscribers. We think longer term, potential additional revenues could augment our synergies estimate meaningfully. On cost savings, we believe the largest contributor would come from OEM & Programming. For the most part, we assume premier content costs will not be adjusted significantly after coming off contract, as DARS will still compete with other delivery technologies.
Stock Implications. - We intrinsically value XM at $17 by YE 2007 and a fair value estimate for Sirius at $4. Assuming a "merger of equals", the MergeCo could be worth $20B or approximately $27 per share for XM and $6 per share for Sirius by the end of the year. We believe that only 2% of the potential synergy benefit is incorporated by the market into today's stock prices (down from 25% a week ago). Merger Talk to Drive Stocks. - We continue to believe that merger anticipation will continue to drive the stocks in the NT, outweighing fundamentals. Hence we have a positive bias on the names. However, we underscore that we are unclear if a deal would overcome the regulatory hurdle, which could prove insurmountable Setting 2007 Sub Est. - We have also reviewed our model to adjust for recent trends (weaker retail). We now estimate XM and Sirius will end 2007 with 9.2-9.3M and 8.1-8.2M subs respectively, down from 10M and 8.5M, respectively. Labels: 2007 subscriber estimate, bear stearns, merger, sirius, xm 1/23/2007 09:20:00 AM
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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. Labels: bear stearns, merger, sirius, upgrade 1/18/2007 08:47:00 AM
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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. Labels: bear stearns, merger, sirius 1/11/2007 10:05:00 AM
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