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SiriusXM to Acquire Pandora in $3.5 Billion Deal

SiriusXM will acquire Pandora in an all-stock transaction valued at approximately $3.5 billion, the companies announced Monday.

According to the announcement, the deal will create “the world’s largest audio-entertainment company,” with more than $7 billion in projected revenue in 2018 and more than 100 million monthly listeners, combining SiriusXM’s 36 million subscribers and Pandora’s 70 million-plus monthly active users. It also moves SiriusXM and its parent company, Liberty Media, aggressively into the streaming market.

The transaction is expected to close in the first quarter of 2019 and is subject to approval by Pandora stockholders; expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and certain competition laws of foreign jurisdictions; and other customary closing conditions.

In June 2017, after months of circling, SiriusXM struck a deal to invest $480 million in Pandora. The cash purchase stock gave the satellite radio company a 19% stake in Pandora, and included a provision to curb SiriusXM’s ability to take over the entire company by limiting SiriusXM from acquiring more than 31.5% of Pandora without the approval of the Pandora board.

SiriusXM’s takeover of Pandora has been unanimously approved by both the independent directors of Pandora and by the board of directors of SiriusXM, according to Monday’s announcement.

In a 45-minute conference call Monday morning, SiriusXM CEO Jim Meyer spoke of how the deal creates “the leading audio streaming company in the U.S., with over 70 million monthly users” and “a win-win for both companies,” singling out the fact that “Pandora’s advertising [business] is multiples bigger than SiriusXM’s.” Pandora has struggled in recent years due to competition from streaming services like Spotify, which is the world’s largest, and Apple Music, and only recently added an on-demand component to its offerings.

“This strategic transaction builds on SiriusXM’s position as the leader in subscription radio and a critically acclaimed curator of exclusive audio programming with the addition of the largest U.S. audio streaming platform,” the announcement reads in part. “Pandora’s powerful music platform will enable SiriusXM to significantly expand its presence beyond vehicles into the home and other mobile areas. Following the completion of the transaction, there will be no immediate change in listener offerings.”

In an interview at Goldman Sachs’ Communacopia conference earlier this month, Pandora CEO Roger Lynch gave no indication that the deal was in the works, saying only that since the equity purchase last year Liberty Media has been involved “on a board level and as an investor; they have not been involved at an operational level.”

According to the companies, the combined entity will drive long-term growth by:

  • Capitalizing on cross-promotion opportunities between SiriusXM’s base of more than 36 million subscribers across North America and 23 million-plus annual trial listeners and Pandora’s more than 70 million monthly active users, which represents the largest digital audio audience in the U.S.
  • Leveraging SiriusXM’s exclusive content and programming on Pandora’s ad-supported and subscription tiers to create unique audio packages, while also using SiriusXM’s automotive relationships to drive Pandora’s in-car distribution.
  • Continuing investments in content, technology, innovation, and expanded monetization opportunities through both ad-supported and subscription services in and out of vehicles.
  • Supporting and strengthening Pandora’s brand.
  • Creating a promotional platform for emerging and established artists, curated and personalized in ways to deliver the most compelling audio experience that connects artists to their fan bases, as well as new listeners.

With regard to the combined company’s future relationship with music companies, Meyer pointed out that it will be paying some $2 billion in royalties annually to record labels. Questioned further, he said, “I can’t tell you how the record labels are going to behave, but Roger and I are hoping for a strong working relationship. We [represent] a sizable piece of money that goes to pay the audio ecosystem, and I believe we’ll find a [positive relationship].”

Meyer also acknowledged that despite SiriusXM’s deep penetration of the automobile audio market, a significant number of people do not ultimately pay to subscribe to the service, and “We would benefit from having a free funnel, and we will have a scaled user base of 65 million people providing us an opportunity to refer millions of users who do not subscribe to Sirius to the country’s largest free [digital] radio option.”

He also acknowledged that since SiriusXM acquired the 19% stake in Pandora, the two companies “have done nothing” thus far to create synergies. “We didn’t get to that phase of the relationship because we decided to let the Pandora management get the ship righted,” Meyer said. “Trying to overlay that was never our intention in the first year. I am very confident that we will successfully accomplish working together and finding places for one-plus-one.”

Pandora CEO Roger Lynch added, “There’s no shortage of ideas that Jim and I have had on things we can do together, everything from the content side to things we can bundle in the car.” He added that the SiriusXM team has been “very supportive of our strategy.”

In prepared statements announcing the deal, Meyer said: “We have long respected Pandora and their team for their popular consumer offering that has attracted a massive audience, and have been impressed by Pandora’s strategic progress and stronger execution. We believe there are significant opportunities to create value for both companies’ stockholders by combining our complementary businesses. The addition of Pandora diversifies SiriusXM’s revenue streams with the U.S.’s largest ad-supported audio offering, broadens our technical capabilities, and represents an exciting next step in our efforts to expand our reach out of the car even further. Through targeted investments, we see significant opportunities to drive innovation that will accelerate growth beyond what would be available to the separate companies, and does so in a way that also benefits consumers, artists, and the broader content communities. Together, we will deliver even more of the best content on radio to our passionate and loyal listeners, and attract new listeners, across our two platforms.”

In the same announcement, Lynch said: “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. 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. This transaction will deliver significant value to our stockholders and will allow them to participate in upside, given SiriusXM’s strong brand, financial resources and track record delivering results.”

According to the announcement, the owners of the outstanding shares in Pandora that SiriusXM does not currently own will receive a fixed exchange ratio of 1.44 newly issued SiriusXM shares for each share of Pandora they hold. Based on the 30-day volume-weighted average price of $7.04 per share of SiriusXM common stock, the implied price of Pandora common stock is $10.14 per share, representing a premium of 13.8% over a 30-day volume-weighted average price. The transaction is expected to be tax-free to Pandora stockholders. SiriusXM currently owns convertible preferred stock in Pandora that represents a stake of approximately 15% on an as-converted basis.

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