In big acquisition news, last week SiriusXM (NASDAQ: SIRI) announced it would acquire satellite radio station and streaming music subscription service Pandora (NYSE: P) for $3.5 billion in an all-stock transaction. According to SiriusXM, this acquisition will create the world’s largest audio entertainment company with revenue exceeding $7 billion in pro-forma revenue this year. The acquisition is subject to regulatory approvals. The boards of both companies have unanimously approved the deal. The deal is expected to close during the first quarter of 2019.

Both brands will continue to operate, and there will be no immediate change in products or services to listeners. Key benefits for Pandora will be SiriusXM’s scale, expertise and financial support, while SiriusXM will benefit from Pandora’s digital presence and ad capabilities.

“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,” said Jim Meyer, SiriusXM CEO, in a news release.

“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,” added Meyer.

Roger Lynch, Pandora’s latest CEO, also commented on the acquisition.

“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,” said Lynch.

In the announcement, SiriusXM outlined the combine company’s strategy for long-term growth:

• Cross-promotion between the two platforms. SiriusXM has more than 36 million subscribers in North America plus more than 23 million annual trial listeners. Pandora has more than 70 monthly active users. In its Q2 2018 report, Pandora said it had about 6 million paying subscribers to its Pandora Plus and Pandora Premium plans.
• Creation of unique audio packages, leveraging SiriusXM’s exclusive content and programming and Pandora’s ad-supported and subscription tiers, along with SiriusXM’s automotive relationships and Pandora’s in-car distribution
• Continued investment in content, technology, innovation and monetization opportunities for both ad-supported and subscription services
• Strengthening of the Pandora brand
• Creation of a promotional platform for new and established artists

In an interesting twist, the merger agreement allows Pandora and its board to seek alternative offers, and it is not obligated to disclose any findings during this process unless the board chooses to accept a better offer.

As of September 21, the last business day prior to the announcement, SiriusXM stock was valued at $6.98 per share. It dropped to $6.26 per share by the end of the day, September 24. As of 7:29 p.m. EDT on September 28, SIRI stock was valued at $6.32 per share.

Pandora’s stock, on the other hand, increased after the news. On September 21, Pandora stock was valued at $9.09 per share. It dipped to $8.98 per share on September 24, but as of 5:39 p.m. EDT September 28, it had bumped up to $9.51 per share.

Insider Take:

This is probably the best deal that Pandora could hope for. Despite multiple changes in leadership over the last couple of years, Pandora has only just begun to rebound, seeing success with its new subscription plans and hoping for strong ROI following its $66.9 million cash acquisition of AdsWizz. Despite these positives, Pandora is still posting significant losses though. For the second quarter of 2018, for example, the company reported a GAAP net loss of $92.0 million, or $0.38 per share. If SiriusXM can help Pandora stop the bleeding, there is potential here for solid growth.