Bear Stearns analyst Robert Peck issued the following XM Q2 Preview Today.

Report Excerpts:

2Q07 Preview: Earnings Likely to Take a Back Seat

- Investment Thesis.

We continue to believe merger overhang has overly weighed on the stock, creating attractive risk / reward levels. Further, we think that conservative fundamentals alone support our positive thesis; and while we believe the merger closing probability is higher than market sentiment, we think investors can still enter assuming the merger fails.

- Reply Comments Before FCC Due 7/24 Remain Primary Investor Focus. Expect the Companies to Go Beyond Just Rebuttal and Discussion on Competition -- XM/Sirius' Reply Likely Will Contain Concrete Proposals on Public Benefits.

In their response, we believe XM/Sirius will not only rebut the arguments raised by the entities petitioning against the merger, but likely will go beyond just discussing the competition in the audio market. We expect the companies to go into more detail about their proposals regarding a la carte, price guarantees, block and rebate, reduced pricing for basic packages, as well as pricing for the “best of both” drawing regulatory focus towards the tangible consumer benefits that will arise from the merger.

- Leaving 2Q Estimates Unchanged.

We are projecting gross adds of 950k, net adds at 323k (marginally higher than street at 310k), all-in churn of 2.6% (XM discloses paid churn, which we think would be 1.7%), CPGA at $114 (vs consensus of $112), sub revenues at $245 million (vs consensus of $243 million), and adjusted EBITDA of $(57) million. XM reports 2Q results on July 26, conference call at 10AM ET, call-in # 877-265-5808, conf ID# 6562974, webcast at

• $15 YE 2007 Valuation; Merger Free Call Option.

In our base case, we assume the merger will fail, our projections are lower than consensus, and much lower revenue and FCF than the previous company guidance. Our $15 2007 target is predicated on a DCF that assumes no merger and therefore $0 in merger synergies. Hence, we think an approved merger is therefore
a free call option for investors.

Position - Long Sirius, Long XM