SiriusXM has gone all in on Pandora. In a notable business deal in the digital audio market, the satcaster announced it will “acquire Pandora in an all-stock transaction valued at approximately $3.5 billion,” pending approval by the streamer’s stockholders and the SEC.
This move confirms an old rumor that the audio companies would join forces, one that had been swirling since SiriusXM invested $480 million in the streamer in June 2017. The deal required SiriusXM to wait 18 months before purchasing any more of Pandora, so this transaction is right on time if the deal closes as expected at the beginning of next year.
The deal makes sense for both companies, as Pandora struggles to get a foothold in the car and SiriusXM seeks to have a greater presence in the home and mobile environments. In the announcement, SiriusXM CEO Jim Meyer said the merger is “an exciting next step in our efforts to expand our reach out of the car even further."
The release cautions, however, that “there will be no immediate change in listener offerings.”
For Pandora’s part, the satcaster’s content and subscriptions also made it an attractive partner, according to Pandora CEO Roger Lynch.
And although Pandora does offer an ad-free subscription option, the streaming service is also ad-supported, which helps to diversify “SiriusXM's revenue streams,” according to Meyer. He had explained the 2017 investment was because Pandora represents “the ad-supported digital radio business, a space where SiriusXM does not play today.”
According to the announcement, the combined SiriusXM and Pandora is positioning itself as “the world's largest audio entertainment company” and projecting 2018 revenue as $7 billion. Additionally, SiriusXM says it has 36 million North American subscribers, plus trial listeners, and Pandora cites 70 million monthly active users.
Pandora shareholders will trade their P shares for SIRI at a rate of 1.44 to 1, which the press release says means Pandora stock is worth about about $10.14 per share. Sirius already owns about 15% of the company’s convertible preferred stock.
Pandora’s board of directors unanimously approved the idea, but the agreement isn’t yet final and includes a provision that allows the board to seek out other proposals before they sign on the dotted line.
Allen & Company LLC and BofA Merrill Lynch are serving as financial advisors to SiriusXM; and Baker Botts LLP and Simpson Thacher & Bartlett LLP are serving as its legal counsel. Centerview Partners LLC, LionTree Advisors LLC and Morgan Stanley & Co. LLC are serving as financial advisors to Pandora; and Sidley Austin LLP is acting as legal counsel.