Music-streaming service Pandora Media (P) is up more than 2% to $9.28 shortly after 11 a.m. ET Monday after the company agreed Monday to sell itself to Sirius XM Holdings Inc. (SIRI) for some $3.5 billion, creating the world's largest audio-entertainment company.
Pandora jumped as much as 20% in premarket trading on the news, but later pared back its gains even though Sirius plans to pay $10.14 a share for the company -- a 13.8% premium over Pandor's close on Friday. The tie-up seems like a way for Sirius to reach younger customers and move beyond car-based users, while also allowing the combined entity to integrate Pandora's platform into Sirius' long-tested subscription programs. Plans call for the deal to close in 2019's first quarter.
Company executives voiced excitement for the deal Monday morning in announcing the agreement. Sirius XM CEO Jim Meyer said in a joint news release that the merger will help his company move beyond its car-oriented radio platform. "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," he said.
Pandora CEO Roger Lynch said the "powerful combination of SiriusXM's content, position in the car and premium subscription products, along with the biggest audio streaming service in the United States, will create the world's largest audio-entertainment company."
Lynch added that by tying up with Sirius, the Pandora platform should manage to expand its advertising business -- a revenue stream that's long been a pressure point for the company. Earlier this year, Pandora moved to purchase ad-tech firm AdsWizz to bolster its advertising business, suggesting its need to accelerate profitability from ads.
To be sure, the blockbuster deal isn't entirely a done deal, as Pandora will have the opportunity to field rival offers into next year.
"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," the fine print of the agreement reads. "There can be no assurance this process will result in a superior proposal."
Allen & Company LLC and Bank of America Merrill Lynch are serving as financial advisers to SiriusXM, while Centerview Partners LLC, LionTree Advisors LLC and Morgan Stanley & Co. will advise Pandora moving forward.