Lehman issued a report today on the DOJ approval of the Sirius and XM Merger.

REPORT EXCERPTS

Investment Conclusion

The Department of Justice has approved the XMSR/SIRI merger without conditions. We expect the FCC to approve the transaction as well (FCC has never rejected a DOJ-approved merger); timing is unclear, but likely next 2-4 weeks. We believe synergies are material ($3-7BN NPV). Expect stock to be volatile as market awaits final approval, attempts to assess appropriate post-transaction valuation forcombined company. Prefer XMSR to SIRI at these levels given that current prices retain 5% deal spread.

Summary

DOJ has approved the transaction. Approval commentary indicates that DOJ viewed competition in OEM as already limited (due to provider lock-in), and that deal would not materially reduce competition in the retail segment. DOJ expects substantial cost efficiencies from transaction. Long-term, approval notice expects new competitive offerings, particularly wireless broadband, to be material. We expect the FCC to approve the transaction in 2-4 weeks. Remains unclear if any concessions beyond the a la carte pricing the companies have already offered will be required - we do not expect companies to be asked to give up spectrum, as some have requested. We believe deal synergies are large, but back-end loaded. Near term benefits come from reduction in overhead. Medium term cost benefits include lower cost radios driven by scale economics (highlighted by DOJ), lower marketing cost due to lower need to promote inretail market. Long term benefits include lower branded programming costs and lower OEM costs due to improved negotiating leverage -satellite network savings are very long term due to large installed base of single-provider radios.

Tyler Savery Position - Long Sirius, Long XM