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Sirius Stays Optimistic on Merger

2/26/2008 11:48:00 AM Eastern

New York — Sirius Satellite Radio said it will expand its radio sales in the used-car market and the company continued to assert optimism that its planned merger with XM will be approved shortly.

CEO Mel Karmazin stated today, “We are optimistic we will hear favorable information from [federal regulators] in the near future.” When pressed for more information, he said only, “We wait by our telephone, but we really have not heard anything from them.”

The merger agreement between Sirius and XM announced a year ago includes a termination clause where either party can “opt out” of the merger as of March 1, 2008. Karmazin said the boards of directors of both companies will meet prior to March to determine if either will act on the clause, but did not speculate on the results.

Often such clauses are extended or ignored, said industry members.

Although optimistic that a merger will be approved, Karmazin said, “Sirius is well positioned whether we combine with XM or continue as a stand-alone company.” He added,” The high fixed cost nature of our business is a disadvantage in the early years, but really pays off for us once we are beyond break-even and continue to grow.”

Sirius said it was free cash-flow positive for the first time in the second half of 2007. 

Also today, Sirius said it plans to announce sales programs in certified pre-owned vehicles offered by all of Sirius’ exclusive OEM partners. The company launched a program with Ford pre-owned cars this month and said used cars represent “a very significant opportunity” over the next three to five years. The market sells about 40 million vehicles annually.

During a conference call regarding fourth-quarter results, Sirius said it had a record year in satellite radio for gross subscriber additions, which reached 4.2 million in 2007. Sirius’s total subscriber base increased 38 percent for the year to 8.3 million, meeting or slightly exceeding expectations.

Much of the subscriber additions were generated by new car sales while retail sales declined, even while Sirius increased its retail share to 68 percent, a record level, according to The NPD Group, said Sirius.

Sirius reported 598,883 net new retail subscribers in 2007 compared with 1.6 million in 2006. For the fourth quarter net new retail subscribers were 211,962 compared with 560,000 for the period a year ago.

Retail declines were attributed to consumer confusion about the pending merger as well as the slower economy and competition from other consumer electronics devices. Karmazin said “secret shoppers” were sent into retail stores and were given misinformation by floor salesmen about the merger. “We think that the merger has certainly contributed toward confusion in the marketplace,” he said.

OEM subscriber net additions for the year increased to 1.7 million compared with 1.1 million in 2006.  Fourth quarter OEM sales also gained to 444,244 net additions up from 348,935 for the period in 2006.

But retail will play a continued role in subscriber sales because new OEM customers will want to buy a second radio for their other car, or a portable, said Sirius.

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