Pandora Media (P 9.37, +0.28, +3.08%) climbed 6.9% in pre-market
after agreeing to be acquired by SiriusXM (SIRI 6.46, -0.52, -7.45%) in an all-stock
The acquisition agreement calls for shareholders of Pandora to receive 1.44 newly-issued shares of SiriusXM for each share of Pandora. The transaction values Pandora at $10.14/share, which represents a 13.8% premium over Pandora's 30-day volume-weighted average price.
Shares of Pandora have had a volatile history since the company's initial public offering in mid-2011. The stock lost more than half of its initial value just three months after the IPO and remained under pressure until late 2012. A strong rally over the next 15 months lifted the stock well above its IPO price, but that advance was short-lived, as Pandora faced renewed weakness in early 2014, sliding to a new record low over the next four years amid competition from other streaming services like Spotify (SPOT 176.76, +1.74, +0.99%), Apple Music (AAPL 219.87, +2.21, +1.02%), and Google Play Music (GOOG 1,170.57, +4.48, +0.38%), among others. The highs of early 2014 ($35+) have never been revisited; at their lowest historical marks, recorded in January of this year, Pandora shares traded in the vicinity of $4. An encouraging first quarter report in early May helped to boost shares from lows toward their current levels.
SiriusXM believes combining the two services will allow the company to capitalize on cross-promotion opportunities, considering SiriusXM has more than 36 mln subscribers and more than 23 mln annual trial listeners, in addition to Pandora's more than 70 mln monthly active users.
SiriusXM plans to combine the company's exclusive content and programming with Pandora's subscription tiers to create unique audio packages well-suited to introduce clients to customized, curated selections of music. Furthermore, Pandora offers SiriusXM the chance to, in the words of CEO Jim Meyer, “expand [its] reach out of the car even further.” SiriusXM’s strongest suit has long been its genre-spanning, commercial-free subscription radio packages and various driving-oriented accessory features (such as traffic updates and roadside assistance) made available in vehicles from all major automakers. While paying subscribers may access SiriusXM radio features online and in-home via connected devices as well, satellite radio delivered in-vehicle remains a crucial feature of the company’s model. Pandora, meanwhile, relies on a somewhat different technological design. Pandora is an algorithm-enabled, tailored music discovery platform that operates via streaming and derives revenue from ads (particularly from free listeners on the platform) and various subscription packages; listeners principally access the platform via mobile devices. Thus, the acquisition of Pandora, with its attendant monetization opportunities and technological structures, supports SiriusXM’s expansion from automotive audio programming into the attractive and fluid space of digital and mobile audio streaming content.
Currently, SiriusXM reports that the acquisition will result
in “no immediate change in listener offerings”, suggesting that the distinct
brands and services of each company will remain intact.
The transaction has been approved by directors of both companies, though Pandora's Board may actively solicit, receive, and evaluate other proposals. The transaction is expected to close in the first quarter of 2019.
SiriusXM reaffirmed its guidance for the fiscal year, expecting revenue of more than $5.7 bln while anticipating free cash flow of around $1.5 bln. The company expects self-pay net subscriber additions of about 1.15 mln.
Pandora reaffirmed its guidance for the third quarter, expecting revenue between $390 mln and $405 mln.