Citi issued a report on Sirius and XM that takes a deeper look at ARPU, and merger synergies. The analyst rates SIRI a BUY and XM a HOLD.

REPORT EXCERPTS

ARPU/Elasticity Analysis Points to Accretion

Reiterate Buy SIRI, Hold XMSR

? ARPU Trade-off — We generally expect to see any decrease in ARPU from new plans to be offset by lower churn and higher gross subscriber additions. Our price elasticity studies support this view and show that churn tends to decrease 2x the rate of pricing while gross sub additions improve at almost 3.8x the rate. We use much more conservative assumptions in our Scenario analysis.

? Four Scenarios — We quantify the range of outcomes from new plans in four subscriber adoption scenarios that show between $220 to $650 million in revenue accretion and $180 to $430 million in EBITDA accretion in 2009. While there is accretion under all the scenarios, it is highest when family/multi-unit subs are eliminated and there is more modest A La Carte/Choice Adoption (note there is a churn risk with turning off multi-subs).

? Incremental Merger Fuel — The new plans provide an additional source of upside that is incremental to the merger synergies. We continue to see $500 million of cost benefits and $400 million of revenue synergies from the elimination of the duopoly. These benefits could lead to more creative OEM offerings.

? Buy SIRI/Hold XMSR — We are cautions on expectations heading into the quarter due to weak auto production and the economy, but believe the long term benefits created by: 1) the merger synergies, 2) the new price plans, and 3) greater OEM penetration rates should more than compensate for the negative NT outlook. We maintain our estimates and targets.

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Tyler Savery Position - Long Sirius, Long XM