SiriusXM is making a major move to diversify into music streaming by acquiring Pandora in a $3.5 billion deal that would create the world’s largest audio entertainment company.
Pandora, which offers free and paid music streaming, would add its more than 70 million monthly listeners to the 36 million subscribers who pay for SiriusXM’s satellite radio programming.
SiriusXM had invested $480 million for a 15% stake in Pandora last year as part of an effort to extend its reach beyond car radio subscriptions. Pandora’s competitors in the music-streaming space include heavyweights Spotify and Apple Music.
“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,” SiriusXM CEO Jim Meyer said in a news release.
“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,” he added.
Under the terms of the deal, SiriusXM will acquire each share of Pandora stock it does not currently own with 1.44 newly-issued SiriusXM shares. Based on SiriusXM stock being worth $7.04 per share, that would translate into a buyout price of $10.14 per share.
On news of the deal, SiriusXM shares declined 10.3% to $6.26 in trading Monday, indicating investors are concerned it was overpaying for Pandora. But The Motley Fool predicted the deal would benefit both companies.
“Growth is decelerating at SiriusXM as it stretches the upper band of its addressable market,” it said. “Pandora is struggling to keep up with [Spotify and Apple Music]. Each company can make the other company stronger.”
The publication also suggested that SiriusXM can “use its star power and scale to provide Pandora with exclusive content to make it stand out from rival streaming services.”
Pandora’s active listener base fell from 76 million to 71.4 million over the past year, but adjusted revenue rose 12% in its latest quarter as it gained ground in premium streaming subscriptions and advertising.