Satellite-radio company Sirius XM Holdings Inc. will buy online music service Pandora Media Inc. in a US$3.5-billion all-stock deal that will help it battle growing competition from streaming rivals Spotify and Apple Music.
Sirius XM, controlled by media mogul John Malone’s Liberty Media Corp., has built a name supplying more than 175 channels to car drivers, but has largely trailed Pandora, Spotify Technology SA and Apple in mobile and streaming content.
Monday’s deal gives the pair a market value of about US$34-billion, topping Spotify’s US$31.2-billion and follows through on Sirius’s purchase of a 15-per-cent preferred-stock stake in Pandora for US$480-million last year.
“We view the read through to Spotify as slightly negative, as it could face a stronger competitor in the U.S., while at the same time one of the only large swaths of ad-supported listeners in the fast-maturing U.S. goes off the market,” SunTrust analyst Matthew Thornton said.
Sirius shares, however, fell 4.2 per cent to US$6.69 as investors worried the company had overpaid.
Shares in Pandora, which has posted losses for at least the past eight quarters, rose 6.5 per cent to US$9.68 in early trading, slightly below an offer value of US$10.05 based on Sirius’s Friday closing price.
The deal, worth US$2.68-billion at the offer price, is expected to generate more than US$7-billion in expected pro-forma revenue in 2018. Analysts said the two businesses were largely complementary.
“[Sirius] cannot offer on-demand radio, and cannot offer customization, and Pandora offers both,” said Michael Pachter, an analyst with Wedbush Securities in Los Angeles.
“Sirius can merge Pandora’s radio business into its satellite subscription business, and can also begin to offer on-demand to its large installed base of satellite subscribers.”
Pandora has been trying to mark its position in an industry where competitors are routinely adding new features, giving away discounts and offering more content, including interviews with popular musicians.
Pandora shareholders will get a fixed-exchange ratio of 1.44 newly issued Sirius XM shares for each share held.
If the deal is terminated, Pandora will have to pay either US$52.5-million or US$105-million, depending on the circumstances, the company said in a filing.
Sirius XM said after the deal, which is expected to close in the first quarter of 2019, Pandora stockholders will own 8.6 per cent of the pro-forma company on a fully diluted basis.
Sirius XM chief executive James Meyer said on a conference call that the company had been in talks with Pandora even before its CEO Roger Lynch took up the position in August last year.
“We had a conversation 15 months ago. We couldn’t reach an agreement on value quite honestly,” Mr. Meyer said.
Allen & Co. and Bank of America are financial advisers to Sirius XM, while Centerview Partners, LionTree Advisors and Morgan Stanley are financial advisers to Pandora.