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SiriusXM confirms “definitive agreement” to buy Pandora outright

By | Published on Tuesday 25 September 2018


It’s been a long-time coming, but yesterday SiriusXM announced a “definitive agreement” to acquire Pandora Media. This will bring the American satellite radio broadcaster and personalised radio service properly into one business. The two firms reckon it will be “the world’s largest audio entertainment company”. And who doesn’t love a bit of audio entertainment?

SiriusXM has long been tipped as a buyer for Pandora. The personalised radio set up has been listed on the New York Stock Exchange since 2011 and, like most digital music businesses, is still trying to work out how to making the delivery of musical streams profitable. There was talk of a Sirius acquisition of Pandora Media last year, but in the end it bought a slice of the company instead – nearly a fifth – in a $480 million transaction.

Assuming the new deal goes through, Sirius and Pandora will still remain as separate products and brands, but there will be plenty of co-promotion between the two. The combined company will also be looking for economies of scale, while also hoping that each side can benefit from the other’s relationships in the advertising industry, the music community, and with other key partners like the automobile industry.

Sirius has much more experience in the subscriptions business, and Pandora has been more active in the subscriptions market in the last couple of years. While it has always offered an ad-free version of its personalised radio set-up for a monthly fee, it started more proactively pushing all that following a relaunch in 2016. Plus, of course, Pandora now also offers a fully on-demand option of the Spotify and Apple Music model for the standard $10 a month.

That said, you sense that management at Sirius also reckon that there is still much untapped potential in online audio advertising and, given the size of Pandora’s audience, it is well placed to capitalise on those opportunities. For its part, the music industry is much more focused on growing online subscriptions at the moment, but it is true that ad-funded services will likely remain a key part of the streaming music market long-term.

In terms of music industry relations, both Sirius and Pandora have had run-ins with the music community over the years. Mainly because both have relied on compulsory licences on the recordings side and collecting society licences on the songs side, and have then lobbied hard the Copyright Royalty Board and rate courts to keep the royalties they have to be pay down. And, of course, earlier this month Sirius was loudly criticised by some in the music industry over its last minute intervention on the Music Modernization Act.

But Pandora’s relationships with the music industry have, in the main, improved in recent years as the company has struck up more direct deals with the record companies and music publishers rather than relying so much on the collective licensing system. And while the music business might bicker with Sirius and Pandora when it comes to licensing, the industry’s marketers recognise the value of reaching each service’s respective audience.

In terms of the specifics of the “definitive agreement” announced yesterday, which has board backing but must still be approved by Pandora Media’s shareholders, under the proposals those with Pandora shares will be offered newly issued Sirius shares on a “fixed exchange ratio of 1.44”. Which means that Pandora’s other shareholders will get themselves some lovely stock in the newly expanded SiriusXM business.

Explaining the maths in a little more detail, the companies said in a statement: “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”. So now you know.

Confirming all of this, SiriusXM boss man Jim Meyer said yesterday: “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”.

Expanding on what those opportunities might be, he continued: “The addition of Pandora diversifies SiriusXM’s revenue streams with the US’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”, he added, “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”.

On the Pandora side of the table, its CEO Roger Lynch added: “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 US, will create the world’s largest audio entertainment company”, he mused on. “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”.