SIRIUS XM SATELLITE RADIO NEWS

The private equity buyout of Clear Channel was approved long ago, but with debt markets in turmoil, the Financial institutions that were the money behind the deal seemed to get cold feet. The $39.20 buyout price simply became too steep. The issue went to litigation, as Clear Channel and Bain sought to force the lenders to honor their side of the deal. Finally, all sides have come to an agreement.

Clear Channel will now be bought for $36 per share. While the new price is lower than the original, shareholders, fresh of of a stock price in the high twenty’s only a few weeks ago, will likely ratify the new sale price. With the Clear Channel issue now complete, radio sector/media watchers have one less buyout/merger to worry about.

“We are very pleased to have reached this accord with our sponsors and the banks funding the transaction,” says Mark Mays, Clear Channel’s chief executive. “This revised agreement is a win for our shareholders because it provides them with substantial value and certainty, while avoiding the delay and inherent risks associated with complex litigation.”

Via Charolette Business Journal

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Position - No Position Clear Channel

Primosphere, in a filing with the FCC, clarified their position relative to their desire to obtain spectrum as a result of the proposed merger between Sirius and XM Satellite Radio.

Primosphere does not want to “lease” spectrum. They are seeking that their application be granted so that they, Primosphere, will be a licensee of a portion of the SDARS spectrum. The company also clarified that their satellite radio service would be FREE.

Simply stated, the company wants a portion of the existing spectrum on a permanent basis to deliver a free Satellite radio service. They company contends that their free service would offer a competitor in the satellite radio arena to a combined Sirius and XM.

Primosphere Filing

In a new twist in the proposed merger between Sirius and XM, Georgetown Partners seems to have shifted a bit from their stance that has remained steadfastly the same through over thirty meetings with the FCC. For the first time, Georgetown has stepped into an arena of defining at least some of the type of programming they will offer. Up until this point Georgetown has only promised that their programming would be “Family Friendly Programming That Meets FCC Decency Standards”. While that sounds noble, it is actually quite broad. The fact of the matter is that every program on terrestrial radio today is “Family Friendly Programming That Meets FCC Decency Standards”.

Georgetown Partners (GP) has committed to Media Access Project (MAP) and Public Knowledge (PK) that if the (Georgetown Partners), were to become an independent lessee, and the proposals of MAP and PK were also accepted that GP would work with the two organizations to achieve their stated goals.

Further, Georgetown Partners has committed to the expenses for getting the qualified programming encoded and transmitted to the merged company for broadcast.

Georgetown is still standing fast that they want 20% of the spectrum to be theirs to control. Anything concession dealing with the goals of MAP and PK would be above and beyond what they are seeking. Basically, what we have is an identical demand to what has transpired in the past, but now that GP is willing to work with and facilitate concessions that MAP of PK are able to obtain. It would appear that this may be an effort to gain support for their proposal by absorbing some public access type programming that is commercial free. The question is why MAP and PK would add a step to the process rather than working directly with Sirius and XM.

Clearly, the filings being received by the FCC now are getting down to the nitty gritty. In my opinion, Georgetown would not have brought this to the table if they felt they would get what they are seeking. Perhaps there has been push-back from some of the FCC commissioners on the GP proposal.

We have tried to contact Georgetown Partners dozens of times to discuss their proposals and stances. Company spokesman have never taken a call, and never returned a call.

Georgetown Partners FCC Filing

Position - Long Sirius, XM.

Analysts are all weighing in on the quarterly reports of XM and Sirius. Some analysts are negative on the sector while others are positive. Price targets are established using various models, and differing assumptions are made by each analyst. Some analysts are basing their estimates on a merger, while others are still using stand-alone models.

The Estimate Roundup:

Wachovia - Sirius - Market Perform with a valuation range of $2.50 to $3.50

Wachovia - XM - Market Perform with a valuation range of $10.00 to $13.00

Stifel - Sirius - Buy with a price target of $4.00

RBC - Sirius - Sector Perform with a price target of $3.00

Cowen - Sirius - Outperform (stock expected to outperform the S&P 500)

Citi - Sirius - Buy/Speculative with a price target of $8

Goldman Sachs - Sirius - Sell with a price target of $2.25

Goldman Sachs - XM - Sell with a price target of $11.50

Merrill Lynch - Sirius - Neutral with a $3.11 price target in 2008 and a $3.37 price target for 2009

As you can see, some analysts are bearish and others are bullish, but the majority fall into a very neutral area. For many, the uncertainty of the merger has made changing a rating on these stocks more difficult. Compound that with company performances that could be rated as “okay”, and there is not much to get excited about. Simply stated, these stocks are all about the merger right now. Long term upside for these equities, in my opinion, will rely on the companies proving out that a merger will deliver synergies and profits. While a merger announcement will bring a pop in stock price, the main consideration is where things will settle down to. For longer term investors the question seems to be whether you are willing to wait to see if all of this comes to fruition. The merger process seems to have taken a toll on the stocks, and tested the patience of the street. Like it or not, there will in my opinion be sellers on the merger news, and this could temper the rise in stock price.

Perhaps the best way to look at this situation is to see what expectations are, and whether or not you feel that the merged company can meet or beat them. At this point the companies are not firing on all cylinders. art of it is the wait on the merger, part of it is the current economy, and part of it is high costs. The synergies are not all instantaneous, but some metrics could scale pretty quickly. A lot depends on how the merged company brands and markets itself (As Sirius, XM, Sirius/XM, or XM/Sirius). I feel it is important that they end consumer confusion and set on a path that markets whatever brand they intend to use. Once complete, this needs to seem like one company to the consumer. Exxon and Mobile did a good job maintaining both brand names while combining the company. Sprint and Nextel in my opinion did not. Once complete (if it passes FCC muster), these companies need to virtually resell the merger in the minds of the consumer.

Where am I in this mix? While I am not a financial adviser, I am bullish on merger news, and more neutral through the end of the year. As a consumer, I am bullish on the concept of satellite radio.

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Position - Long Sirius, XM.

Merrill Lynch analyst Glenn Campbell upgraded Sirius Satellite Radio to Neutral Today. The analyst has a price target of $3.11 for Sirius.

REPORT EXCERPTS

The clouds start to lift

We are raising our opinion to Neutral to reflect 1) an increase in our DCF value following better-than-expected 1Q08 subscriber growth; and 2) our view that the negative influences on the share price (declining expectations for growth, refinancing concerns and regulatory risks on the Sirius/XM merger) have passed their peak.

Subscriber results ahead of our estimates

XM and Sirius both reported better than expected subscriber growth with their 1Q08 results today: in aggregate, 627K vs our estimate of 578K, down from 841K in the year-ago quarter. EBITDA losses were slightly larger than our estimates and consensus. For Sirius, we believe these results were good enough to support the stock, in our view; for XM, they were stronger yet.

We have revised our forecasts to reflect higher subscriber additions in 2008. We have also adjusted our long-term model to assume higher churn (2.5%, revised from 2.4%) and higher ARPU ($9.50, revised from $9.00).

DCF valuation increased: to $3.11 for YE08E With our estimate/assumption changes, our YE08 DCF value increases from $2.89/share to $3.11/share. Our YE09E valuation increases from $3.07/share to $3.37/share.

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Position - Long Sirius, XM.

Tom Watts of Cowen issued a report today on Sirius Satellite Radio. The analyst rates Sirius as Outperform.

REPORT EXCERPTS

Sirius Satellite Radio Outperform (1)

2008 Q1: In-Line Results.

Waiting for FCC.
SIRI’s solid Q1 matched us on subs and ARPU, and beat on EBITDA, SAC and EPS. OEM net adds eclipsed retail adds for the 5th straight qtr, while overall net adds cont’d to gain share vs. XMSR (Outperform, $12.30) for the 10th straight qtr. We expect the FCC to issue an Order for Circulation proposing approval of the merger, but timing is still uncertain. XM’s refi issue should beresolved via bondholder consent over the next few weeks. Maintain Outperform.

Another Solid Quarter. Revs of $270MM nearly matched our $273MMEand consensus of $276MM. In-line revs were driven by flat ARPU of $10.09 vs. our $10.10E and consensus of $10.25. EBITDA loss of ($40MM) vs our($57MM)E, reflected SIRI’s cost controls in Programming, Billing, and Marketing. SAC of $91 beat ours and consensus’ $95 by 4%. Higher churn of 2.7% came in slightly above our 2.5%.

OEM to Dominate Sub Growth. OEM net adds of 321K vs. our 256KE dominated total net adds of 323K, eclipsing for the 5th straight quarter,retail adds which produced only 2.5K new subs. We expect increasing penetration of factory installs to drive solid sub growth, providing good visibility on FCF.

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Position - Long Sirius, XM.

RBC analyst David Bank issued a report today on Sirius Satellite Radio. The analyst rates Sirius as sector perform with a price target of $3.00

REPORT EXCERPTS

Event
1Q08 Earnings Mixed As FCC Keeps SIRI Waiting

Investment Opinion

Probability Of Transaction Completion High, But Conditions Unknown And Fundamental Upside Limited—SIRI continues to execute according to plan, but given relatively challenging environment (anemic retail demand, slowing auto sales, tough consumer economy) we don’t see much fundamental upside outside of merger arb trading right now. Given DOJ approval already granted, last remaining hurdle to merger completion is FCC approval process. While we believe probability of deal completion > 70% and NPV of synergies $4bn, we also think current stock price is discounting this and would remain on sidelines.

Furthermore, conditionality ultimately required by FCC could eat into synergy values. Maintain SP and $3 price-target.

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Mark Wienke of Goldman Sachs Issued reports on XM and Sirius Satellite Radio today. The analyst sees XM as a sell with a 12 month price target of $11.50. Wienke sees Sirius as a sell with a price target of $2.25.

REPORT EXCERPTS FOR XM

XM: In-line 1Q08, but long-term industry concerns unanswered

What’s changed
XM’s 1Q results fell modestly short of our financial estimates owing to higher than expected costs, though the top-line and subscriber metrics were essentially in-line. Specifically, XM’s 1Q net adds of 303k essentially matched our estimate, SAC was slightly worse than expected at $73 (GSe $68), while CPGA was $99 vs. our $100 estimate. Encouragingly, conversion ticked up to 53.3% versus 51.5% a year ago, while churn and ARPU were essentially flat yoy at 1.77% and $10.36, respectively. We are lowering our 2008 – 2010 LPS estimates to ($1.75), ($1.20), and ($0.85).

Implications
Trends and management focus has shifted to an OEM-centric model, and the cost structure, as expected, is following the transition. Specifically, as OEM penetration increases, revenue share and royalties (+45% yoy in 1Q08) are, and will continue to, ramp in lockstep. Furthermore, for the second quarter, net retail adds were negative at (-51)k vs. +60k a year ago. 2008 financial targets were again not provided, citing the pending deal approval, upon which we would expect an aggressive integration plan with an improved combined profitability profile, save for the cost of compliancewith deal conditions. In the even the merger does not happen, we would expect fairly dramatic cuts in the overall expense base, owing to the continued losses (-$129)mn at XM in 1Q08 and higher yoy. As a note, XM ended 1Q08 with $425mn in available liquidity, down $300mn yoy. Absent a merger and given continued losses, any significant deviations from internal targets may exacerbate future funding requirements.

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The numbers are the numbers, and the charts speak for themselves.

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Sirius and XM both reported earnings today, and while the results were not stellar, there are many metrics which are scaling in a manner that helps demonstrate the viability of the SDARS business model. Costs are under better control and both companies are seeing the benefits of their respective OEM deals bring in subscribers.

For XM, the contribution of Nissan and Hyundai are beginning to pan out as the installations in these brands are beginning to contribute to the subscriber rolls. For Sirius, the promise of a Ford ramp up will be substantial in Q3 and beyond.

Sirius outpaced XM in the subscriber tally, coming in with a bit over 19,000 more subscribers than XM. Sirius is seeing an increase in churn, but sector watchers have been anticipating this with the churn-out of DCX and to a lesser extent, Ford promotional periods beginning to expire.

The retail channel remains a tough channel. XM had a negative 51,000 subscribers in the retail channel. Sirius, which does not break out these numbers remains positive in this area by our estimation. One can arrive at this conclusion by estimating that XM had a stronger OEM quarter on a gross additions basis, as well as some previous trends. Assuming that NPD captured 55% of Sirius’ retail, then I would estimate Sirius had 302,000 gross retail additions vs 233,000 for XM. This would leave Sirius at 701,000 in the OEM channel compared to XM’s 802,000.

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