Sirius XM Holdings Inc. (SIRI) made an announcement to purchase music-streaming service Pandora Media (P) in a deal valued at $3.5 billion that marks another big event in the U.S. media and entertainment sector.
Pandora shareholders will get 1.44 newly-issued SiriusXM shares for each Pandora stock, the companies said, a fixed exchange rate that factors in SiriusXM’s existing 15% holding of convertible preferred shares. Pandora shareholders would own around 8.6% of the combined group on a fully-diluted basis, according to SEC filings, and the combination will create world’s largest audio entertainment company, the pair said, with 2018 proforma revenues of around $7 billion.
“We’ve made tremendous progress in our efforts to lead in digital audio. Together with SiriusXM, we’re even better positioned to take advantage of the huge opportunities we see in audio entertainment, including growing our advertising business and expanding our subscription offerings,” said Pandora CEO Roger Lynch. “The powerful combination of SiriusXM’s content, position in the car, and premium subscription products, along with the biggest audio streaming service in the U.S., will create the world’s largest audio entertainment company.”
Pandora shares jumped 12% in pre-market trading following news of the deal and Sirius shares were seen 5.3% lower at $6.61 each, trimming their year-to-date gain to around 26%. The combined group would have some 40 million global audio subscribers, based on the second quarter earnings figures, with SiriusXM getting around $13.30 in average revenue from its 33.5 million customers and Pandora getting $6.52 from its 5.98 million subscribers.
Spotify Inc. (SPOT) also gained attention on the news from a sympathy play. The biggest music streaming provider in the world added 8 million new subscribers in the three months ending in June, the company said, taking its total past 85 million.
SiriusXM, which is controlled by John Malone’s Liberty Media, had overall second quarter revenues of $1.432 billion, up 6.3% from the same period last year, while Pandora booked an 11.7% increase which took its second-quarter total to $385 billion.