Sirius XM Holdings had announced it will acquire Pandora Media in a $3.5 million deal that will create the world’s larges audio content company.
SiriusXM had purchased a 19% stake in Pandora in June 2017 for $480 million. The company’s state that the acquisition will drive long term growth by capitalizing on cross promotion between SiriusXM’s 36 million subscribers 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, utilizing SiriusXM’s programming in Pandora’s ad-supported and paid tiers, and expanding Pandora’s in-car distribution.
INSTANT INSIGHT: The deal creates a subscription audio powerhouse while bringing SiriusXM into the ad-supported music content arena. Just as we saw when SiriusXM parent Liberty Media sought to acquire a stake in iHeartMedia earlier this year, the company has been seeking ways to better increase its digital reach. No need to emphasize your expensive satellite infrastructure when you already have a roster of content to offer via streaming. Could it soon be like 2004 again when you can listen to Howard Stern just by listening through 20 minute stopsets on Pandora instead of paying for SiriusXM where you get a limited commercial version?
Sirius XM Holdings Inc. (NASDAQ: SIRI) and Pandora Media, Inc. (NYSE: P) today announced a definitive agreement under which SiriusXM will acquire Pandora in an all-stock transaction valued at approximately $3.5 billion. The combination creates the world’s largest audio entertainment company, with more than $7 billion in expected pro-forma revenue in 2018 and strong, long-term growth opportunities.
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. 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.
The combined company 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 with Pandora’s ad-supported and subscription tiers to create unique audio packages, while also utilizing SiriusXM’s extensive 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 the vehicle.
Supporting and strengthening Pandora’s highly relevant 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.
Jim Meyer, Chief Executive Officer of SiriusXM, 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.”
Roger Lynch, Chief Executive Officer of Pandora, 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.”
Transaction Details
Pursuant to the agreement, 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.
The merger agreement provides for a “go-shop” provision under which Pandora and its Board of Directors may actively solicit, receive, evaluate and potentially enter negotiations with parties that offer alternative proposals following the execution date of the definitive agreement. There can be no assurance this process will result in a superior proposal. Pandora does not intend to disclose developments about this process unless and until its Board of Directors has made a decision with respect to any potential superior proposal.
Approvals
The transaction has been unanimously approved by both the independent directors of Pandora and by the board of directors of SiriusXM.
The transaction is expected to close in the first quarter of 2019. It 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.
SiriusXM Reiterates Full Year 2018 Outlook
SiriusXM reiterated its full-year 2018 guidance provided on July 25, 2018, with self-pay net subscriber additions of approximately 1.15 million; revenue over $5.7 billion; adjusted EBITDA of approximately $2.175 billion, and free cash flow of approximately $1.5 billion.
Pandora Reiterates Q3 2018 Guidance
Pandora reiterated its third quarter 2018 guidance provided on July 31, 2018, with revenue of $390 million to $405 million and Adjusted EBITDA of ($25) million to ($10) million.
Conference Call Information
SiriusXM will hold a conference call to discuss this transaction today, September 24, 2018 at 8:30 AM ET. The dial-in information for participants is (866) 610-1072 (Domestic) and +1 (973) 935-2840 (International). The passcode for both numbers is 7138655. Investors will have the opportunity to listen to the conference call live and access the accompanying presentation slides on each company’s investor relations tabs on each company’s website, http://investor.siriusxm.com or http://investor.pandora.com.
Participants are encouraged to register at least 15 minutes early to download and install any necessary software. For those who cannot listen to the live broadcast, a telephonic replay will be available through October 8, 2018 by dialing (800) 585-8367 (Domestic) and +1 (404) 537-3406 (International), passcode 7138655. An archived version of the replay will also be available at http://investor.siriusxm.com or http://investor.pandora.com.
Advisors
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.
