Sirius to acquire Pandora in $3.5 billion online radio deal

[NEW YORK] Billionaire John Malone's Sirius XM Holdings Inc is acquiring Pandora Media Inc in a US$3.5 billion all-stock deal, giving the satellite-radio operator an online-music service to better compete with Spotify Technology SA.

The combination will help Sirius XM expand beyond an audience that mainly listens to the satellite radio company's programs while driving. Sirius XM bought a stake in Pandora last year for US$480 million, giving the online-radio company a lifeline after upstarts such as Spotify began luring away streaming-music subscribers.

The all-stock deal values Pandora at US$10.14 a share. It's 12 per cent more than the closing price on Friday, but way below levels of four years ago, before the stock tank as competition from Spotify and Apple Music intensified. Matthew Thornton, an analyst at SunTrust Banks Inc, called the price "underwhelming," and Pandora opened under US$10 on Monday.

On a conference call with analysts, Pandora and Sirius XM offered little detail about how they will work together after the merger. Asked about his plan for the combined company, Sirius XM Chief Executive Officer Jim Meyer summarized it this way: "There's real money to be made by optimizing cross promotion across these platforms," he said. "That's, if you want to know, what my gut tells me, that's where I see the biggest opportunity."

Mr Malone has been working to build a radio empire, complimenting the pay TV assets that helped him build his fortune. Sirius XM already has a 15 per cent stake in Oakland, California-based Pandora. And Malone's Liberty Media had also expressed interest in acquiring iHeart Media Inc, the US radio broadcaster that filed for bankruptcy earlier this year.

Pandora jumped 6.2 per cent to US$9.66 at 9.34 am in New York. Sirius XM fell 3.4 per cent to US$6.74.

Sirius XM is buying a company that has recorded years of losses. Pandora's shares fell for years in the face of competition from Spotify and other online services. The stock had begun to recover this year under a new CEO, gaining 89 per cent through Friday's close, after Pandora introduced new listening options and showed it could attract subscribers. At the close of the second quarter, the company had about 6 million paying customers.

Pandora has introduced its own on-demand music service and brought in former Sling TV Chief Executive Officer Roger Lynch a year ago to work on a turnaround.

Sirius XM and Pandora said the transaction is expected to be completed in the first quarter of next year. The deal allows Pandora to look around for better offers. If Pandora takes a superior proposal from another acquirer, the company would owe Sirius a US$52.5 million breakup fee. If the deal fails for other reasons, the break-up fee is US$105 million.

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