SiriusXm’s $3.5bn Acquisition of Pandora

By Carlos Asorey, Angela Gladkikh, Steven Skorma (Georgetown University) - Date: 20/01/2018

Overview of the deal

  • Acquirer: Sirius XM Holdings Inc.

  • Target: Pandora Media, Inc.

  • Estimated value: $3.5bn

  • Announcement date: 9/24//2018

  • Acquirer Advisors: Allen & Company, BofA Merrill Lynch

  • Target Advisors: Centerview Partners, LionTree Advisors, Morgan Stanley

On September 24, Sirius XM announced the all-stock acquisition of Pandora for approximately $3.5 billion. Under the following agreement, the owners of outstanding shares in Pandora will receive a fixed exchange ratio of 1.44 newly issued Sirius XM shares for each share of Pandora they hold. The implied premium of the transaction is approximately 13.8%. Sirius XM already controls 15% of Pandora and the acquisition allows for further industry consolidation as streaming services compete for business and subscribers.

While the transaction has been approved by the management teams of both companies, the acquisition is expected to close in the first quarter of 2019, following the necessary shareholder and regulatory approvals. The transaction sets to create the world’s largest audio entertainment company with more than $7 billion pro forma revenues and strong long-term growth prospects.

“This is great for SiriusXM on multiple levels. First of all, it gets Pandora’s 70 million-plus users (SiriusXM has 36 million) along with their data and credit card info. What’s better is that it appears that there’s little overlap between the audiences. What’s better than tripling your audience in one fell swoop? Second, it provides online streaming for SiriusXM that it didn’t have before. Yes, Sirius has a streaming component, but it’s tiny compared with what Pandoa brings to the table. Sirius really needed a more visible online presence, and now it has it. -Bobby Owsinski, Forbes

Company details (Sirius XM Holdings Inc.)

Sirius XM is one of the largest radio companies in the world and provides services and products like commercial-free music, news, sports and talk programming. Widely available almost in every vehicle, SiriusXM also serves as a provider of connected vehicles services.

- Founded in 1990, headquartered in New York, US

- CEO: James Meyer - President: Scott Greenstein

- Number of employees: 2,575

- Market Cap: $28.0bn - EV: $32.5bn

- LTM Revenue: $5.7bn - LTM EBITDA: $2.1bn

- LTM EV/Revenue: 5.7x - LTM EV/EBITDA: 15.7x

Company details (Pandora Media, Inc.)

Pandora is an international music discovery platform that offers radio and on-demand music streaming. Striving to connect artists and their audience, its proprietary tool, Music Genome Project, tailors hours of customizable music to the taste of each individual listener.

- Founded in 2000, headquartered in Oakland, US

- Chairman: Gregory Maffei - President and CEO: Roger Lynch

- Number of employees: 1,938

- Market Cap: $2.3bn - EV: $2.7bn

- LTM Revenue: $1.5bn - LTM EBITDA: -$0.3bn

- LTM EV/Revenue: 1.7x - LTM EV/EBITDA: N/M

Projections and Assumptions

Short term consequences

Following the completion of the acquisition, Pandora shareholders will receive 1.44 shares of newly issued SiriusXM stock granting them an 8.6% stake in the combined entity. Immediately following the announcement Pandora shares rose 8.58% to $10.65 in pre-market trading, representing a positive initial reaction to the deal for Pandora investors. However, Sirius XM shares fell 1.29% to $6.89, likely stemming from Pandora’s recent revenue losses: in the first half of 2018 alone, Pandora lost over $200 million in revenue.

The acquisition, however, represents a combined $7 bn in pro-forma revenue in 2018 and will make SiriusXM the world’s largest audio entertainment company by adding Pandora’s 70 million US users to their current 36 million US subscribers once the transaction is completed. This combined entity would create the world’s largest audio entertainment service with over 100 million users compared to the next leading competitor, Spotify, which only holds 75 million active subscribers. Overall, this is beneficial for both parties as music-streaming services have been growing in recent years, and U.S. consumer spending in that area is expected to jump 29% to $6.6 billion in 2019. SiriusXM hopes to capitalize on this growth and expects large revenue growth in coming years.