Jim Cramer is still focused on the proposed merger of Sirius and XM. Tonight, he interviewed Rep. Gene Green who was central to a letter against the merger sent to government regulators. Cramer points out that Green has accepted $35,000 from the National Association of Broadcasters and $13,000 from Clear Channel.

Green defends his anti merger stance citing the Direct TV and Echostar merger.

Cramer promises to continue his support for the merger. This is sure to be entertaining to watch over the coming days.

Video of Cramer interview with Green.

Position - Long Sirius, Long XM

Citi issued a report on XM’s Q4 and full year operations.

REPORT EXCERPTS

XM Satellite Radio Holdings Inc (XMSR)

No Real Surprises in 4Q07 - Merger Remains Stock Driver

 Fate of XM Still Depends on Merger — We estimate XM price reflects a roughly 25% probability of merger approval, but we still believe it’s more likely than not, Maint. Buy (1S) rating w/new, probability weighted target of $17, based on lower downside potential on lower estimates. XM still has a favorable risk/reward with 41% ETR to target, vs (20%) downside potential

 In Line Subs, Positive Net Add Growth, OEM Still Driving Bus — XM had in line 4Q subs of 9M w/ better OEM weaker Retail. Still, XM drove the 2ndqtr of Y/Ynet add growth at 4%, the second time since 1Q06.

 Conversion Rate and Churn Look Good — Conversion rate rose to 53.9%,best in 6 qtrs and good in light of heightened penetration. XM also kept self pay churn low at 1.72% w/focus on customer care. But better customer care came at a cost w/customer care exp in 4Q as % of revs rising to 27% (vs. 15% last yr).

 SAC/CPGA/Royalty Going Up — FY 07 SAC of $75 was 18% higher than FY06 at$65, but if we account for cars on lots related to already spent SAC, it would be lower at $63. Mix shift to OEM also pressures CPGA rising to $140 in 4Q, but ex Starbucks exp, CPGA wd be a more modest $120 closer to recent qtrs, but still above historical rates due to bigger OEM mix. Higher royalties also hikes expense profile, w/royalty exp as % of rev likely up 400bps+/yr and rising.  4Q07 Mixed Bag —Revs of $308, +20%, beat est. w/ better than est. ARPU. But offsetting better revs and lower int exp. was more royalties, cust. care exp.and non-cash comp w/led to deeper EPS loss of ($0.78) vs ($0.68) est.

Believe XMSR Stock Continues to be Driven by Merger Prospects XMSR shares have rallied 14% over the past 1 1/2 months on increased optimism, as we see it, regarding the possibility of getting regulatory approval for its pending merger with Sirius Satellite. Looked at another way, the stock is roughly flat since the start of the year, compared with the radio group down (21%) and the S&P 500 down (7%). Any way you slice it, we believe XMSR has seen stock outperformance driven in large part by the hopes that it will achieve merger approval. We note that assuming PV of synergies at $7 billion (which is above consensus), the stock currently reflects a roughly 25% probability of merger success. Even if we use a more modest consensus synergy number of $4 billion, the stock price reflects a 33% probability of success, which is too low, in our view. Specifically, we continue to feel a merger remains more likely than not, although our view is not without risk particularly as the merger approval process continues to drag out. On a fundamental basis, after accounting for recent changes in XMSR’s royalty structure, higher customer care costs, and greater than expected stock based comp, the company is plugging along roughly in line with our expectations. However, we have had to trim estimates given the large increase in royalties and stock based comp. Based on our new estimates, we arrive at a new probability weighted price target of $17, down from $19.50, which assumes a 60% probability that the merger will be approved. Our new price target implies a 41% estimated total return, making our Buy (1S) rating still appropriate.

In Line 4Q Subs, Same Old Story, OEM Good, Retail Weakening Subs XM reported ending subscribers for 4Q07 of 9.03 million subs, which was in line with our estimate, and at the low end of its guidance of 9 to 9.2 million (but which guidance was set long ago). Specifically, both OEM subscribers and Retail subscribers came in where we expected at 3.59M and 4.52M, respectively. Overall, XM delivered 460K net subscriber additions (361K OEM and 99K Retail) which translated into 4% Y/Y growth in Net Adds, only the 2ndquarter to show positive growth in Net Adds in the last 7 quarters. Breaking this down further we seen Net Add growth was fueled by the OEM channel up 87%, and dragged down by Retail which saw a (63.5%) decline in Y/Y Net adds. However, on a positive note, Retail Net Adds were actually positive, in comparison to actually turning negative for the first time back in 3Q07. On a Gross Add basis, XM reported 1.13M in total gross adds, up 6% Y/Y, the third consecutive quarter of positive gross add growth. Retail Gross Adds were down (33%) while OEM Gross Adds increased 46%.

OEM Conversion Rate Rises – A Positive XM reported an impressive 53.9% OEM conversion rate, up from last year at 52.4% and up from 3Q07 at 52.5%. XMSR’s conversion rate in 4Q07 is the best we’ve seen in the last 6 quarters, and all in the face of ramping penetration at OEM partners. While there continues to be fluctuation in this metric, over the past 2 years, we believe XMSR should be given credit for maintaining conversion rate in a fairly narrow band of 52% to 54% at the same time that penetration rates have soared. Looking ahead, XM seemed fairly confident that given the steps they’ve taken (like better dealer engagement, channel presets, etc.) to maintain/improve conversion rates that they would be able to keep conversion rates in the low 50%’s range, which given increasing penetration is a positive in our view. Longer term, we continue to think conversion rates will come down as penetration moves from luxury cars to lower end vehicles where consumers are likely to be more cost conscious. Specifically, we anticipate that as XM’s penetration into partners such as Nissan, Hyundai, Toyota and GM increases, the conversion rate is likely to decline from the current 54% to the low 40% (on average) ten years out.

Self Paying Churn Stays Low – A Positive XM reports self paying sub churn (both OEM and aftermarket Retail) of 1.72%, which is down from the 1.79% churn one year ago, and a tad up from 3Qchurn of 1.69%. To put XM’s churn in perspective, 4Q07 results were a strong improvement over the 1.8% to 1.85% range for churn that XM saw in the 5 quarters from 2Q06 to 2Q07. XM’s ability to sustain its recently dropped churn number is a significant positive and an increased vote of confidence by subscribers in the satellite radio product. Its ability to maintain low churn is also a testament to XM’s focus on customer service. Although XM does not disclose the exact split between OEM and retail self paying churn, but we continue to estimate that Retail churn is running at roughly 2% per month while OEM is at a lesser 1.4%. However, all this focus on customer care to improve conversion rates and churn also came at a cost, with 4Q07 customer care as a percentage of revenues rising to 27% in 4Q07 versus 15% of revenues in 4Q06.

Not a Surprise, Expense Profile Changes with Heightened Royalties Not surprisingly, XM’s Royalty and Revenue share expenses increased in large part to the increased fees it has agreed to pay as determined by the Copyright Royalty Board back in December of 2007. This increase in royalties is magnified by the fact that XMSR charged the entire 2007 royalty increase in 4Q07 of $37 million. There was also a $13 million settlement for recording label law suits. The net effect was a 146% Y/Y increase to $107M, or 35% of total revenues. Looking forward, however, by spreading royalty fees over the year, we expect total Royalty and Revenue share expenses to hover around 22% of total revenues in 2008 increasing by 50 basis points a year for several years. There was also pressure in this line item due to mix shift to OEMs which caused an increase OEM revenue share expense that is not present with regard to a Retail sub. Looking ahead as the business model continues to shift to OEM, we expect the Royalty and Revenue share expenses to represent a large portion of the company’s expense profile, which has now increased.

SAC/CPGA Continues to Move Higher Due to Shift to OEM While we continue to like the growth prospects of the OEM channel there is a near term cost in the form of increased SAC and CPGA. XM’s subscriber acquisition cost (SAC) came in at $87, a 25% increase, due in large part to the shift to OEMs including increased factory installation costs from relatively new OEM partners. Specifically, the company has already outlayed the SAC costs, but will not be able in many cases to record the gross add until the car is sold, or they become a paying subscriber. The company noted that if they included cars on the lot not yet sold as gross adds, their FY 2007 SAC would actually have been $63 (instead of $75) which would have been an improvement over 2006 FY sac of $65. Similarly, when looking at CPGA (which has SAC as a component), the shift toward OEM has increased this metric to $140 in 4Q07, up from $128 last year, and higher than our $118 estimate. But we would note, if we exclude the $22 million Starbuck settlement included in marketing, this would have cut CPGA down by $20 to $120 in 4Q07 and more in line with our expectations, and an improvement from last year. Longer term we continue to expect mix shift to OEM will pressure the SAC and CPGA metric.

Revisions to Estimates and Price Target Change While XMSR is not issuing guidance for 2008 until greater clarity on whether or not the merger will be approved, we have still made an attempt at forward estimates. We have opted to keep or revenue estimate intact at $1.3 billion. However, with a much higher royalty and revenue share expense profile, coupled with what we expect could be higher customer care costs, SAC and CPGA costs than we initially expected, our expense forecast increases, leading to 2008 adjusted EBITDA loss of ($230). Our EPS also falls to a loss of ($1.96) versus our prior estimate of a ($1.87) per share loss. Using a probability weighted analysis on whether or not the proposed XM/SIRI merger will close, we assume a 20% downside risk to the price if the deal does not close (to $10), and assuming a PV of $7.2 billion in synergies, and assuming a 60% probability that the deal goes through, we arrive at our new $17 price target, down from $19.50 previously.

4Q07 Recap: In Line Subs, Better Revs, But Higher Costs XMSR delivered better than expected revenues of $307.7 up 21% and 7% higher than our estimate. 4Q revenue results were based on in line subs suggesting better than expected subscription ARPU of $10.14. In terms of expenses, SAC came higher than expected at $87 (vs. our $80 estimate) due in large part to the switch in mix toward OEM. Similarly, CPGA came in higher at $140 (vs our $118 estimate). But perhaps most notable was the very large increase in the revenue and royalty line, due in large part to the CRB settlement which increased royalties paid out. The result of this was magnified by the fact the XM took this increased royalty charge of $37 which applied to full year 2007 all in 4Q07. The net result was the Royalty Revenue Share line item was up 146% to $107M, which was $52M above our estimate which had not yet been adjusted for the royalty ruling. With also higher than expected stock based comp, despite solid revenues, EPS fell a dime short at a loss of ($0.78) per share.

Investment strategy We rate the shares of XM Satellite Radio Holdings Inc Buy/ Speculative (1S). In our view, satellite radio still remains one of the few areas within the media sector that offers attractive secular growth. Still, with a proposed merger with Sirius Satellite in the works and a high level of uncertainty as to the outcome, merger-related news flow will likely be the key stock driver for now. We continue to feel there is greater than currently expected potential upside if the merger goes through, and that there is a greater probability that the deal is consummated than currently reflected in the stock. Understanding the strictly binary potential paths for XM stock on whether the deal is approved or not, for investors with a greater risk tolerance, we think the risk-reward in XM favors investment in XM stock.

Valuation Our $17 price target is based on a probability weighted analysis on whether or not the proposed XM/SIRI merger will gain governmental approval and be closed. Specifically, assuming a 20% downside risk to the price if the deal does not close (to $10), and assuming a PV of $7.2 billion in synergies, and assuming a 60% probability that the deal goes through, we arrive at our $17 price target. Further, our analysis assumes a Cost of Equity in deriving the present value of synergies of 8.9% a risk free rate (in accordance with CIR recommendations) of 4.09%, an equity risk premium (in accordance with CIR recommendations) of 4.18%, and beta of 1.2 which translates into a terminal year multiple of 13.5x (based on a long-term free cash flow growth rate estimate of 1.5%).

Risks We have assigned a Speculative Risk rating to XM Satellite due primarily to strong stock impact up or down from the binary decision on whether or not XMSR and SIRI’s proposed merger is approved. Other risks also include the fact that XM is still in the early stage of its business cycle and thus still operating with quarterly net income loses. Furthermore, if Retail subscriber growth slows faster than expected, or OEM growth accelerates more slowly than expected, XM may have difficulty reaching our current subscriber estimates. Furthermore, if there is a greater than expected increase in music industry royalties, XM may have trouble reaching our current estimates.

Tyler Savery Position - Long Sirius, Long XM

Tom Watts of Cowen issued a report on XM’s Q4 and full year operations.

REPORT EXCERPTS

XM Satellite Radio Outperform

Q4: OEM Subs light.

1x Items Cloud Cost Improvements.

Conclusion: Q4 results emphasized XM’s transition to an OEM business model. We expect OEM subs to surpass retail subs in Q1, as OEM net adds eclipse retail. Nevertheless, soft OEM markets resulted in weaker-than-expected net adds inQ4. We expect auto sales to decline Y/Y in 2008 and are revising our estimates for both XM and SIRI. Opex improvements which were clouded by 1x items, should drive XM’s FCF pot’l in 2008 and beyond, even without a merger. Maintaining Outperform.

■Solid Financials Before 1x Items. Revenues of $308MM beat our $305 by 1% and consensus of $304MM. EBITDA loss of ($117)MM came within 8% of our ($108)MM despite numerous 1x items including payments to SoundExhange, Starbucks, and record labels. EPS loss of ($0.78) included $0.25c of merger and settlement related charges. $77MM of 2007’s $80MMin merger and settlement charges are not expected to recur in 2008.

■Net Adds Reflect OEM Focus. Total net adds of 460K missed our 521KE and consensus of 515K due to weaker-than-expected OEM adds. OEM adds of 360K vs our 494KE resulted from a weak auto sector, but demonstrated XM’s OEM-driven subscriber growth potential.

■Sub Metrics OK. Seq. flat ARPU of $10.14 beat our $10.05E and consensus of $10.00. Calc’d Churn of 2.54% beat our 2.60%E, while reported churn of 1.72% was lower Y/Y vs. Q4:06’s 1.79%. Reported SAC of $87, and CPGA of $140 reflected 1x items incl. XM’s termination of its deal with Starbucks. Calc’d SAC of $79 was generally in line with consensus of $77, but better than our $83E. Calculated CPGA of $120 was better than our and consensus of $125E. Both figures suggest continuing cost improvements.

■Lowering Subscriber Forecast. We are lowering 2008 and outyear net adds to reflect lower OEM production

Tyler Savery Position - Long Sirius, Long XM

Goldman Sachs issued a report today on XM’s Q4 and full year operations.

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XM Satellite Radio (XMSR)

Approaching a fork in the road; 4Q07 review What’s changed

XM’s 4Q results largely met consensus and our financial estimates, though fell modestly short on metrics with lighter net adds and higher costs per sub. Specifically, XM’s 4Q net adds of 460k was lower than our 533k estimate. SAC (ex 1x items) was slightly worse than expected at $81 (GSe $80), as was CPGA of $133 vs. our $127 estimate. Conversion improved to 53.9% vs. 52.5% in 3Q and 52.4% a year ago, churn held flat at 1.72% vs. 1.69% in 3Q2007 and 1.79% , in 4Q06 and ARPU was flat at $11.71.

Implications

Trends and management focus has shifted to an OEM-centric model, and the cost structure, as expected, is following the transition, with more costs as penetration, revenue share and royalty agreements ramp in lockstep.

However, what is unlikely to be linear is the path post the merger decision. Upon deal approval, we would expect an aggressive integration plan with an improved combined profitability profile, save for the cost of complying with deal conditions. Under the no merger scenario, we would expect fairly dramatic cuts in the overall expense base and likely business model changes, owing to the continued losses ($565mn at Sirius + $682mn at XMin 2007) and cash flow burn ($500mn total in 2007) of the companies. Thus the least likely path is one that follows linearly from the current trends. XM could be fully funded, but having drawn on its credit facility, further deviations from internal targets (as the company chose not to provide 2008 targets) may result in little if any cash cushion.

Valuation

We are maintaining our Sell rating and 12-month price target of $11.50 based on our DCF and the expected value upon a merger. Key risks Upside risks include merger approval, stable costs, accelerating net adds, steady conversion rates and churn; downside risks include the opposite.

Stock Recommendation

We continue to rate XMSR shares Sell. Even with the market incorporating a fair probability of merger approval, the stock is down about 20% since the merger announcement a year ago as lower expected cash flows and deteriorating channel trends have weighed on the stock. Given the fall off in the retail satellite radio market and little anticipation of new content deals or compelling technology on the horizon that might drive an upside surprise, we still find it challenging to be comfortable with XM’s current valuation. On February 20, 2007 XM and Sirius announced a definitive agreement to combine in a merger of equals. Based on our analysis, we continue to estimate a 30% chance of a clean approval (meaning non-substantive conditions). Excluding the merger proposal, we do not believe the fundamentals, subscriber growth curves, or risk-adjusted estimates support a premium or equal valuation for Sirius versus XM. Therefore, we continue to think the risk to the downside for SIRI shares remains greater relative to XMSR, even though we also rate XMSR shares SELL, owing to the risk/reward profile of the stock assuming the assorted merger outcomes.

Subscriber analysis

We are adjusting our 2008 year-end subscriber estimates of 10.4mn. Our 2008 estimates imply net adds of 1.4mn, with only 70k in retail and the remaining 1.33mn in OEM. This compares to 2006, a year in which XM added 1.7mn subscribers (789k retail and 907k OEM) to end the year with at 7.6 million subscribers.

The increasing proportion of OEM net adds has been expected, though the scale has increased faster, likely owing to displacement of what might have otherwise been a retail net add. We understand that on average, 9 out of every 10 retail radios are sold with car kits, implying that as the factory installation rates grow, the retail market requires new growth drivers. Already we forecast fewer net adds in the retail channel yoy for the next five-year forecast period.

To illustrate our thoughts on why Sirius has more relative risk to weakness in the retail channel versus XM, look at how Sirius’ net retail additions as a percentage of gross retail additions has tracked XM’s on a one year lag (See arrows in Exhibit 1). As Sirius has significant retail net adds, there is more to lose if the channel deteriorates further.

Our probability-weighted approach yields $11.50 for XMSR shares

Our $11.50 12-month price target for shares of XM Satellite Radio is based on our probability weighted approach of our DCF-based valuation versus the expected value upon merger. In arriving at our price targets, we handicap the announcement of a merger proposal, receipt of and conditions attached to various approvals, and the estimated success in executing potential synergies.

Fundamental valuation yields $10.50 per XMSR share For our fundamental valuation framework, we employ a discounted cash flow analysis. Based on this methodology, our fundamental analysis yields a value of $10.50 per share for XM. In our view, EV/subscriber metrics are viable in mature subscriber businesses with known ARPU, per sub profitability, churn, and associated metrics, but not in early stage, unprofitable businesses.

4Q07 review and 1Q08 outlook

XM’s 4Q results largely met consensus and our financial estimates, though fell modestly short on metrics with lighter net adds and higher costs per sub. In 3Q2007, revenue of $307mn (GSe $303mn) rose 20% yoy, while SAC and CPGA (ex-1x items) were slightly higher than expected at $81 and $133 versus GSe $80 and $127. That said, owing to lower subscriber additions, adjusted OI loss of ($134)mn (ex-ESO and 1x items) was slightly better than our ($144)mn estimate, leading to adjusted LPS (ex-1x items) of ($0.56), a penny better than our ($0.57) estimate. Encouragingly, conversion improved to 53.9% vs. 52.5% in 3Q and 52.4% a year ago, churn held flat at 1.72% vs. 1.69% in 3Q2007 and 1.79% ,a year ago and ARPU was essentially flat at $11.71. XM ended the year with $157mn in cash, versus $218mn last year. Note that a sale leaseback in 1Q2007 netted $288mn in proceeds, and 4Q2007 use of cash was $75mn.

For the first quarter, we expect net additions 310k vs. 285k a year ago. With the retail market continuing to weaken, we expect retail & OEM gross additions of 253k & 784k, respectively. On a net basis, we estimate only 4,000 retail net adds vs. 306,000 OEM. Said differently, our estimates imply net adds to be 99% OEM in 1Q08.

We expect 2008 revenue & EBITDA (pre SBC) of $308mn & ($15mn), respectively, resulting in LPS of ($0.36). Additionally, our SAC & CPGA estimates are $68 & $100. For the full year we revenue & EBITDA (pre SBC) of $1,316mn & ($145mn), respectively, resulting in LPS of ($1.70). Additionally, our SAC & CPGA estimates are $75 & $112.

What to watch for: Issues that will drive the stock

(1) Larger-than-expected slowdown in auto sales: Recent comments from the automotive industry (both OEM and dealer chain) indicate that many of the issues impacting the subprime, CDO and CLO market are projected to trickle down and carry negative implications on new car sales, implying around 15-16 million units sold in 2008. As satellite radio operators progress towards an OEM centric model, watch for primary and derivative effects of a housing and auto slowdown to temper the subscriber ramp.

2)Marketing shifting toward OEM channel: XM continues to shift marketing dollars from the retail channel toward strengthening the OEM channel given that the OEM channel is expected to contribute a larger portion of new subscribers. On the OEM side, we expect XM to weight more of its ad budget towards co-promotions with OEM partners rather than traditional retail marketing. XM believes that additional communication with trial OEM subscribers has helped bolster conversion and retention rates. Within the retail channel we expect XM to allocate more promotional dollars to event-based marketing.

3) OEM penetration to ramp:Watch for acceleration in installs across OEMs as XM pushes to ramp penetration across all models. Specifically, the total number of vehicles produced with factory installed XM is over 9mn, with GM expected to manufacture more than 2.5mn vehicles in the model year 2008. That said, XM does not expect the revenue share agreements to increase as penetration ramps, stating that it would most likely be flat to down over time. We believe this is due to GM having installed its 8 millionth vehicle, after which point the revenue share (percentage) is static.

4) OEM conversion ratios relatively static:Watch for the conversion of OEM promotional subscribers to full paying subscribers to decline over the long term. That said, currently the conversion rate is improving, as XM reported 53.9% vs. 52.5% in 3Q and 52.4% a year ago. We estimate a gradually more conservative outlook in our model, predicting rates approaching 40%-45% by 2010 for both XM and Sirius. XM has historically stated that they expect the conversion rate to fluctuate around the mid 50% range. OEM conversion rates will gradually become less important as only GM and Honda subscribers are measured for conversion and all other OEM partners are counted as subscribers after electing to become a paying subscriber. We think the arrangements between Toyota, Hyundai and Nissan will be large drivers of the OEM ramp in 2008 and will alleviate focus on declining conversion rates. Since the OEM does not prepay for the initial subscription term, XM is not initially recording the customer as a subscriber. Rather, the “trial sub” will not be reflected in the sub roll until they voluntarily convert to a self-paid subscription.

5) Sufficient Liquidity:XM could be fully funded given the current operating plan. Notes from XM 10-K regarding liquidity:“Provided that we meet the revenue, expense and cash flow projections of our current business plan, we expect to be fully funded and not need additional liquidity to continue operations beyond our existing assets, credit facilities and cash generated by operations; our current business plan is based on estimates regarding expected future costs, expected future revenue and assumes the refinancing or renegotiating of certain of our obligations as they become due, including the maturity of our existing credit facilities and $400 million of convertible notes in 2009.” Consumption of $75mn of cash in 4Q contradicts the $75mn of cash flow generated by Sirius. Mapping out the quarterly cash flow estimates absent a merger seems critical in assigning value in a ‘no-merger’ situation

Upside:

•Ultimate satellite radio subscriber universe is larger than our expectations and it takes less time than expected to reach.

•A merger is approved by all regulatory bodies and shareholders and expected synergies are fully realized.

•Programming and distribution costs remain at current levels or decrease, bringing cash flow break-even sooner than our estimates indicate.

•Widespread consumer acceptance of both the service and new products.

Downside:

•A merger is rejected and the stocks trade down to levels consistent with fundamentals.

•Satellite problems, chipset delays, or OEM partner production issues.

•Disruption to key exclusive content, or rising royalty rates for music.

•Failure to attract and retain new subscribers with exclusive content.

•Further complications with regulators including the FCC or DOJ

Tyler Savery Position - Long Sirius, Long XM

Benjamin Swinburne of Morgan Stanley issued a report on XM’s Q4 and full year operations.

REPORT EXCERPTS

XM Satellite Holdings

What’s Changed - FY08E Net Adds From 1.33 mm to 1.29 mm - FY08E Revenue From $1.42 bn to $1.38 bn

Pushing Out FCF Breakeven: We are modestly reducing our subscriber estimate for FY08. We base our reductions on our more modest assumptions for XMSR’s OEM partners due to continued domestic retail weakness, and we assume OEM net additions will contribute roughly 98% of net additions in FY08E. The impact of the lowered sub estimates as well as the increased music royalty rate delays our FCF breakeven estimate until 2012 compared to 2011 previously. We continue to assume the benefit of a $1 monthly rate increase; however, given commentary on the pending merger, we have pushed back the date of the assumed increase to 2009.

4Q07 Results Broadly In-Line: XMSR reported broadly in-line results marked by better than expected subscriber net additions and reported ARPU of 460K and $10.14 respectively. Pre-marketing EBITDA margins were 31% after adjusting one-time items versus our estimate of 27%. Modest reduction to OEM forecast: We have decreased our OEM gross additions by 110K and net additions by roughly 40K, implying nearly 60% and 10% YoY growth, respectively. XM stated that it currently penetrates roughly 40% of its OEM partners production and expects this to grow to 70% by MY10E vehicles.

Retail Estimates Unchanged: Despite a modest rebound in retail net additions in 4Q07, we continue to believe the channel will actually lose subscribers in FY08 compared to adding 185K net additions in FY07. 4Q07 retail net additions of 99K represented a 63% decline versus 4Q06, while net additions actually swung negative in 3Q07, representing a 125% decline from 3Q06.

•Elusive FCF Breakeven Appears Further Away. Neither XMSR nor SIRI has generated annual FCF.Our current estimates imply that XMSR will reach FCF (CFFO less capex) breakeven in 2012E compared to 2011E in our previous estimates. Our estimates include the benefit of a $1 monthly rate increase assumed in ’09. As, shown in Exhibit 2, should XMSRnot implement a rate increase this year, FCF breakeven would not arrive until 2013 if we were to exclude the benefit from working capital.

•OEM Expected to Reach Near 100% of FY08 Net Additions DARS industry subscriber growth now almost completely relies on its OEM channels. XMSR’s OEM channel accounted for over 75% of net additions in 4Q07 and we believe this % will ramp to 98% by YE08E. The company stated that its OEM partners have indicated that they intend for XM radios to penetrate roughly 70% of their total production compared to 40% today. Given improving OEM conversion rates, as seen in 4Q07, we believe OEM additions could be a significant source for long-term subscriber growth. We currently look for roughly 4.15mm and 1.37 mm OEM gross and net OEM additions in FY08, representing 60% and 10% YoY growth, respectively.

FY08E Outlook

•We have lowered our revenue and adjusted EBITDA loss estimates for FY08E from $1.42 bn and $56 mm to $1.38 bn and $116 mm, respectively. Our lowered estimates result from our reduced subscriber estimate for the year. We now look for FY08E pre-marketing EBITDA margins of 31% compared to 33% previously.

•We have reduced our FY08E subscriber net addition estimate to 1.29 mm compared to 1.33 mm previously.Our lowered subscriber estimate reflects our reduced OEM expectation for the industry due to continued domestic auto weakness. Our revised subscriber expectations assume XMSR adding 1.27 mm OEM net additions and losing approximately 12K retail additions in FY08E.

•We look for FY08E SAC and reported ARPU of $60 and $10.52 compared to our previous $57 and $10.78, respectively. We have kept our full-year churn estimate broadly unchanged at 2.12%. 4Q07 Results vs Morgan Stanley Estimates XMSR reported solid 4Q07 results this morning compared to our fairly conservative estimates for the quarter. XM net additions of 460K came in approximately 72K ahead of our estimate led by better than expected monthly churn of 1.72% compared to our 2.18% estimate. Net additions growth from both the OEM and retail channel came in ahead of expectations. While retail additions beat our estimates for the quarter gross and net retail additions declined 33% and 63%versus our 38% and 76% estimates, respectively. ReportedARPU of $10.14 came in broadly in-line with our estimate, while SAC of $87 came in $4 above our expectation for the quarter. Like competitor SIRI, XMSR failed to provide anyFY08 guidance in its release this morning.

4Q07 revenue and adjusted EBITDA loss of $307.7 mm and $116.9 mm compared to our $310.4 mm and $79.8 mm, respectively. While subscriber and consolidated revenues came in broadly in-line with our expectations for the quarter,higher revenue share and royalties drove adjusted EBITDA roughly $38 mm below our estimate. Similarly to SIRI, higher revenue and royalties payments in the quarter were likely due to accrued royalty payments from satellite radio’s increased royalty agreement announced in December ‘07. On the subscriber side, both OEM and retail net additions of 351K and 99K came in ahead of our 323K and 65K estimates. OEM net additions also benefited from the sequential and YoY uptick in conversion rate to 53.9% from 52.5% in 3Q07 and 52.4% in4Q06.

Tiered Offering Impact Unknown We believe proposed programming tiers could potentially benefit subscriber growth by providing a wider array of content at more attractive price points, but its impact to the merged company falls dependent on consumer take-rates of the various offerings. The merged company would continue to offer subscribers their current programming packages at the existing $12.95 price, but would also offer a la carte bundles starting at $6.99 for a 50- channel package. The company would also offer family targeted packages starting at $11.95 as well as 50 channel music and talk specific packages priced at $9.99.

Potential for Overhead Reductions from Merger - We believe the merger of the XMSR and SIRI platforms would likely allow for the reduction of dual G&A, R&D, and variable content and programming expense buckets resulting in roughly $1.4 bn of merger synergies. While larger on-air talent contracts such as Howard Stern would likely have to be renegotiated upwards due to larger listening audiences, we believe the merger would provide more negotiating leverage with the platforms’ condensed programming talent. The current sports (i.e. MLB, NBA, NASCAR) contracts would remain in-place until the contracts reached their expiration dates which are not due for several years. In addition, we believe the current revenue share agreements with OEM partners would also remain in place given the ever-increasing importance of the OEM channel to subscriber growth. Reductions in R&D channel would likely come only after near term technology needs related to the interoperability of both platforms were addressed.

SAC/ CPGA Reductions Could Result from Merger We believe the early value produced from a merger would result from reductions in the marketing and commission components of CPGA. Reductions in radio subsidies would likely take longer to emerge as new, interoperable radios would likely be more expensive than the current stand-alone radios and thus require greater subsidies. We believe reductions in commission and promotion expenses would result from increased bargaining power with the retailers and from the more attractive programming lineups of the merged company. It is also important to note that we believe subscriber growth would be unaffected by the company’s more modest marketing campaign.

Incremental Sub Growth Could Result from Improved Conversion Ratios - We believe a XMSR and SIRI merger could drive incremental subscriber growth from both slower retail gross additions declines as well as improved OEM conversion rates. We estimate that retail gross adds would improve approximately 5% annually and that roughly 10- 15% of subscribers who would have typically disconnected service after the promo period decide to stay on. We note that both our retail and OEM estimates could be conservative.

Improved OEM conversion rates are particularly beneficial as they carry significantly higher contribution margins as the initial CPGA has already been incurred. We estimate the improved rates could add approximately 4 mm new OEM subs by YE17E, which would add roughly $4 bn of incremental revenues through the forecast period (’08E- ‘17E).

Tyler Savery Position - Long Sirius, Long XM

Robert Peck of Bear Sterns issued a report on XM’s Q4 and full year operations.

REPORT EXCERPTS

XM Satellite Radio (XMSR-$12.11-Outperform)

In-Line Quarter — Looking Forward to DOJ Decision

• 4Q07 results about in line. Ending subs, gross and net adds, churn, and revenues were in line with our projections. SAC and CPGA were higher. Adj EBITDA came in lower, primarily due to 1x items. If XM included vehicles in dealer lots (like Sirius does), ‘07 gross adds would have been 600k higher, and ending subs 1.255 mn higher (at 10.3 mn vs currently reported 9mn).

• Several 1x items impacted the quarter, including (i) $37 mn music royalty catch-up costs, (ii)$20 mn Starbucks termination fee in SBC, (iii) $9 mn merger-related expenses, (iv) $13 mn settlement costs for recording labels lawsuits.

• Focus on OEM. XM stated that it was working with OEM partners to ramp deployments tothe 60%-70% of production by MY ‘10 from the current 40%, while maintaining conversion rate at the current low-50% vicinity. XM also mentioned increased adoption of value added services as well as bundling multi-year subscriptions in the vehicle sticker price.

• “Fully funded” but drew down on credit facility. XM drew down $188 mn of the $250 mn credit facility given several large payments coming up in 1H08, including $60 mn to MLB, $37 mn music royalties, as well as continued satellite capex. In addition, XM is in discussions to potentially refinance debt with change of control provision (likely impacting $600 mn9.75% notes, $200 mn floating rate notes, and $231 mn satellite sale & leaseback debt), should the merger be approved.

• Fundamentals have taken a backseat to the merger outcome. While the DOJ decision is anticipated virtually any day now, we view the fact that XM hasn’t met recently with the DOJ as a positive. We have consistently believed that the DOJ will approve the merger. As such, when/if the DOJ approves the merger, we expect the FCC process to focus on concessions. We reiterate our Outperform rating.

Tyler Savery Position - Long Sirius, Long XM

David Bank of RBC issued a report on XM’s Q4 and full year operations.

REPORT EXCERPTS

XM Satellite(NASDAQ: XMSR)So Tired…Tired Of Waiting…For The DOJ

Sector Perform Above Average Risk

Investment Opinion

XMSR Trading Will Likely Remain Event Driven, With Minimal Fundamental Upside—Despite mixed 4Q07 fundamentals and continued tepid outlook for retail, XMSR will likely continue to trade around resolution of pending merger with Sirius and probability weighted value of synergies that could emerge from proposed transaction. We are surprised that it has take the Department Of Justice (DOJ) this long to opine the transaction. While we believe probability of deal completion is greater than 50% and NPV of synergies $4bn,we also think current stock price is discounting this and would remain on sidelines throughout likely merger development volatility. Maintain SP rating and$14 price-target.

4Q07 Fundamentals Mixed, Netting To Basically In-line Quarter— Revenues($308mm versus $303mm consensus and our $307mm estimate) and churn(1.72% versus our 1.81% estimate) and 53.9% conversion ratio upticked over 100bps sequentially and YoY (versus 52.5% estimate) all beating our expectations but adjusted EBITDA (negative $117mm versus our negative$110mm estimate), SAC ($87 versus our prior $82 expectation), net adds (460kvs. 524k consensus) all missed expectations. Gross retail additions were abysmal at down 33% over 4Q06.

We’re Skeptical Retail Demand Will Materially Improve Near-term— We continue to see anemic retail category demand we don’t expect XMSR to reverse its trend of share loss anytime soon. That said, we believe that XMSR is selling the majority of it’s aftermarket radios through either Wal-Mart or directly, potentially understating market share (NPD doesn’t capture either of these categories) and category demand trends.

No New Merger News— Management confirmed that all necessary documents have been filed and XMSR/SIRI are simply waiting for regulatory agencies responses. Walk-away date of March 1 but will almost certainly be extended by both party’s Boards, if necessary.

We Continue to Think Odds are >50% for Merger Approval but Think That Business As Usual Probably Needs To Change In The Event The Merger Doesn’t Occur— XMSR has successfully executed its OEM distribution business. But we believe that as a stand alone company, its retail strategy must, in some way be overhauled. We aren’t sure how we’d impact such a change, but we don’t see how things will improve without some major action on the part of management.

Tyler Savery Position - Long Sirius, Long XM

Barrington analyst James Goss issue a report on XM’s Q4 and full year operations.

REPORT EXCERPTS

XM Satellite Radio Holdings Inc. (XMSR-NASDAQ )

Investment Highlights

• XM reported fourth quarter and full year results that lagged our expectations including subscriber counts and earnings measures. EPS of $(2.23) for the year compared unfavorably with our estimate of $(2.10) and the consensus mean of $(2.07). The quarterly EPS figure was $(0.78), a larger loss than our $(0.65) estimate and the $(0.63) mean. The year closed with a subscriber count of 9,027,000, somewhat below our estimate of 9,077,000. The full year net additions were 1,398,000 including 460,000 in the fourth quarter. Our estimates had been 1,448,000 for the year and 510,000 for the final period.

• The shift to an OEM subscriber focus remains at the forefront. OEM net subscriber additions totaled 1,213,000 in 2007 on gross additions of 2,622,000. By contrast, retail net additions totaled only 185,000 on gross additions of 1,269,000. XM is essentially running in place on the retail side, with substantial retail gross additions required to offset churn in this subscriber category, and generated modest growth. One year ago, the net additions were fairly comparable between these major categories, with 884,000 net OEM subscriber additions and 812,000 net retail subscriber additions during 2006.

• As was the case with Sirius, the increased royalty rates agreed to by the satellite radio companies caused the revenue share and royalties expense line to jump in the quarter, reflecting not only the fourth quarter’s share of the impact but a retroactive adjustment for the first three quarters as well. XM also experienced added expenses totaling roughly $77 million in the year for merger costs, legal expenses and other one-time items, in addition to a $22 million non-cash charge to terminate the Starbucks agreement.

• We are maintaining our MARKET PERFORM rating on XMSR. We remain cautious about the relatively soft subscriber momentum that should form the underpinning of any substantial improvement in earnings trends. The key investment plus will likely be news that the merger can take place and, while we feel the odds still favor this scenario, it remains uncertain.

Quarterly Highlights

XM Satellite Radio Holdings Inc. announced financial results for Q4/07 and FY/07 that were below our expectations. In the quarter, revenues were up 20% to $308 million, unadjusted operating loss increased by approximately 45% to $(202) million and net loss decreased 9% to $(239) million, leading to diluted EPS of $(0.78) versus $(0.90) in the year-ago quarter. We had expected diluted EPS of $(0.65) on revenues of $305.1 million. The consensus mean estimate called for diluted EPS of $(0.63) on revenues of $303.8 million.

Revenue growth in the quarter was primarily driven by a $46 million year-over-year increase in subscription revenues, bringing total subscription revenues in the quarter to $266.5 million. This increase reflects gross subscriber additions of 1.13 million and net subscriber additions of 460,000 in Q4/07. Much like the data reported by Sirius on February 26, XM is seeing a marked shift in subscriber growth, away from retail and more focused on automotive OEM customers. We believe XM data services like XM NavTraffic and XM NavWeather are helping to promote growth in the OEM markets. To further emphasize this shift toward an OEM-centric approach, when compared with Q4/06, OEM net subscriber additions in the quarter were up 110% (361,000 versus 172,000), while retail net subscriber additions fell 63% (99,000 versus 271,000).

At the end of the quarter, OEM subscribers totaled 3.59 million and retail subscribers totaled 4.55 million, bringing the year-end subscriber total (which includes subscribers in OEM promotional periods, rental car subscribers and data service subscribers) to 9.03 million. Also on the positive side was a reported year-over-year increase of 150 basis points (increasing to 53.9%) in the conversion rate. Management noted that this was aided by some OEM partners’ decision to bundle 1-3 year subscriptions into the purchase of a vehicle. This also helped contribute to a modest decline in the quarter’s monthly churn rate (1.72% versus 1.79% in Q4/06). Management also observed that XM and Sirius use different treatments for OEM equipped cars. While there are arguments in support of each method, the current subscriber count advantage in favor of XM is likely larger on a comparable basis than is implied by the raw numbers.

While many of the trends regarding growth in the revenue and subscriber base were positive, the cost side of the company’s results was more negative. However, to be fair, many of the costs incurred in both the full-year and the quarter are non-recurring and should not be present in 2008. For instance, the operating loss of $(202) million included $58 million in costs associated with the proposed merger with Sirius, $13 million in settlement expenses for recording label lawsuits and $37 million in retroactive royalty fees, due to a royalty rate increase at the end of the year. Increases in G& A and marketing costs also added to the higher operating loss. SAC rose to $87 from $74 in Q4/06 and CPGA rose to $140 from $128 over the same period.

Annual Highlights

Full-year revenues in 2007 were up 22% to $1.14 billion. Unadjusted operating loss rose 27% to $(511) million, while net loss fell 7% to $(682) million. Diluted EPS for the full year was $(2.22), compared to $(2.70) in 2006. Our estimates called for diluted EPS of $(2.10) on revenues of $1.13 billion, while the consensus mean estimate calls for diluted EPS of $(2.07) on revenues of $1.13 billion.

Gross subscriber additions for the year were 3.89 million, with 2.62 million coming from the automotive OEM market and 1.27 million coming from retail. XM added 1.40 million net subscribers in 2007, compared to 1.70 million in 2006. Of the 1.40 million, 1.21 million came from the automotive OEM market and 185,000 came from retail. Additionally, the monthly churn rate for 2007 dropped to 1.75% from 1.77% in 2006, but the conversion rate slid modestly to 52.7% from 53.3% last year.

The annual increase in operating loss was exacerbated by the presence of a variety of non-recurring charges, some of which we discussed above. Management pointed out on the conference call that, over the entire course of 2007, the company incurred $177 million of charges that will not recur in 2008. Also of interest was management’s discussion of significant reductions in capital expenditures in 2008 and beyond. The XM3 and XM4 satellites are now online and should be able to provide XM with 15 years of service. Additionally, the XM5 satellite is nearing completion, providing a ground spare that will also cover Sirius’ spectrum, providing a potential plus assuming the merger closes. Now that XM’s infrastructure is largely in place and the nearly $700 million that was spent in putting up this new fleet of satellites is all but accounted for (with the exception of $63 million left for finishing up work on the spare XM5 satellite), free cash flow should have a chance to see improvement over the next few years.

Estimate Updates

We have made some changes to our estimates in the wake of the new earnings report. Our assumptions for 2008 are detailed following the text of this report. Our new EPS estimates are $(2.00) for 2008, $(1.50) for 2009, $(1.10) for 2010 and $(0.75) for 2011. We have not changed our subscriber growth assumptions that call for an increase to roughly 15 million by year-end 2011. Our Sirius figure for that time is a similar number, indicating a combined sub count of roughly 30 million over the next several years, contributed in fairly equal parts by these two competitors. Sirius will benefit from the absence of certain costs, as detailed above, but with added allocations for the new royalty structure.

Opinion

We are maintaining our MARKET PERFORM rating on XMSR. We remain cautious about the relatively soft subscriber momentum that should form the underpinning of any substantial improvement in earnings trends. The key investment plus will likely be news that the merger can take place and, while we feel the odds still favor this scenario, it remains uncertain.

Tyler Savery Position - Long Sirius, Long XM

Jeff Wlodarczak, analyst for Wachovia published a report on XM’s Q4 and 2007 Operating Results.

REPORT EXCERPTS

XM Satellite Radio Holdings Inc.

XMSR: Weak Satellite Radio Demand Trends Continue in Q4

• XM Q4 RESULTS - WEAK SUBSCRIBER (SUB) TRENDS CONTINUE–XM reported a 4% YoY increase in net new sub additions to +460K (from +443K in Q4 ’06), materially below consensus +522K expectations although in-line with out 450K est. Partly reflecting a lack of interest in the sat radio product, the aftermarket & data channel added only +99K (-64% YoY) net subscribers. Gross sub additions were 1.13M (+6%) below consensus at 1.198M and in-line with our1.119M. Churn (excluding promotional disconnects) was 1.72% compared to our forecast of 1.80% and total churn was 2.52% compared to consensus of 2.6% and our estimate of 2.5%. The OEM conversion rate remained stubbornly at the 50% level although it did improve to 53.9% (vs. 52.4% in Q4 ‘06 and 52.5% in Q3 ’07), we believe this modest improvement reflected extremely aggressive post trial promotional activity.

• FINANCIAL RESULTS MIXED–All-in subscriber monthly ARPU for Q4 was $10.10 in line with $10.00 consensus and our $10.01 driving reported revenue of $308M roughly in-line with our estimate of $306M and consensus of $304M. Cost Per Gross Addition (CPGA) was $120 ($140 as XM defines it) vs. our expectation of $127 and $116 in Q3’07 and $128 in Q4’06. CPGA excluding promotional discounts was $156 (vs. our estimate of $162). Operating cash flow was a loss of ($155M) (including stock option expense and merger related expense) versus our ($137M) loss. The difference between our loss and actual results was related to higher than expected stock-based comp. Like SIRI ($2.93), XMSR did not provide 2008 guidance.

• BOTTOM LINE: Weak demand trends, highlighted by continued very weak retail demand and 50% OEM conversion rates continue (despite aggressive post trial promotional activity). While we believe there is clearly a material niche for sat radio service, we think both players need to ”right size” their cost/business models and a merger of the two players makes a lot of sense to speed this process up. The problem is merger approval (previously expected by the end of 2007) is still uncertain, with the stocks in our opinion overvalued as standalone entities and at best fairly valued as a combined entity. We estimate the industry’s current enterprise value implies the industry will reach the 31M subscriber level (assuming post merger a subscriber is worth $350 in a steady state), vs. the YE 2007 (which includes a material percentage of “subscribers” that are inactive on dealer lots and in promotional periods).

Valuation Range: $10 to $13 Our valuation range is based on a discounted cash flow. We assume a discount rate of12% and a terminal value of 60x estimated 2010 free cash flow. Risks include slower-than-expected subscriber growth and competing terrestrial alternatives.

Investment Thesis: XM has over 8 million subscribers, strong OEM relationships and impressive technology. We are cautious on the outlook for satellite radio and XM and are concerned about the aggressive growth expectations implied by the market value.

Tyler Savery Position - Long Sirius, Long XM

International Launch Services (ILS) announced a contract today for the launch of two SIRIUS Satellite Radio satellites on the Proton Breeze M vehicle. ILS has conducted three launches for Sirius in the past (photo is launch of Sirius 3).

Under the terms of the deal, Sirius expects to launch SIRIUS FM-6 under the contract announced today. Sirius FM-6 is currently under construction at Space Systems/Loral and is anticipated to be launched in the fourth quarter of 2010. In their most recent call Sirius announced intentions of their next launch taking place in the first half of 2009.

The Proton booster and the Breeze M upper stage are built by ILS’ Russian partner, Khrunichev Space Center of Moscow. The Proton vehicle launches from the Baikonur Cosmodrome in Kazakhstan.

“We thank SIRIUS for selecting Proton, and for its long-term relationship with ILS,” said ILS President Frank McKenna. “We launched SIRIUS’ initial constellation of three satellites in 2000. Proton has the ideal performance for SIRIUS, with both its heavy-lift capability and its flexibility to carry spacecraft to various orbits.”

ILS is a joint venture of Space Transport Inc., along with Khrunichev Space Center and RSC Energia of Moscow. ILS has exclusive rights to market the Proton, Russia’s premier heavy-lift vehicle, to commercial satellite operators worldwide. The Proton has a heritage of 333 missions since 1965.

Proton builder Khrunichev is one of the cornerstones of the Russian space industry. It was created from the merger of the Khrunichev Machine-building Plant and the Salyut Design Bureau 15 years ago. The company includes among its branches a number of key manufacturers of launch vehicle and spacecraft components in Moscow and in other cities of the Russian Federation.

via Central Daily

Position - Long Sirius