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Sirius XM (SIRI) and Pandora Media (P) today announced that the satellite radio company will acquire the $ 3.5 billion Internet broadcasting company. This is the type of news that I have been speculating for some time. Once completed, Sirius XM and Pandora will merge to create the world's largest audio entertainment company.
In a joint press release, the company said the new entity would have pro forma sales of around $ 7 billion in 2018. Sirius XM has held a dominant position in the automotive sector for some time, while services such as Pandora and Spotify (SPOT) were the main players in mobile content and streaming. Such an agreement allows Sirius XM to better position itself on segments such as smart speakers, while allowing Pandora to further integrate into the automotive industry.
With the announcement, Sirius XM's CEO, Jim Meyer, highlighted several key points about why this agreement makes so much sense:
- The company can take advantage of opportunities for cross-promotion between the base of more than 36 million Sirius XM subscribers in North America and 23 million annual test listeners and more than 70 million customers worldwide. Monthly active users of Pandora, which represent the largest digital audience in the United States.
- Leverage exclusive Sirius XM content and programming with subscription and advertising levels supported by Pandora to create unique audio packages, while utilizing Sirius XM extended automotive relationships to drive onboard distribution from Pandora.
- Continue to invest in content, technology, innovation and expanded monetization opportunities through advertising and subscription services entering and leaving the vehicle.
- Support and strengthen the highly relevant brand of Pandora.
- Create a promotional platform for emerging and established artists, organized and customized to offer the most compelling audio experience that connects artists to their fans, as well as new listeners.
The stock offer is structured in a very simple way. The owners of the outstanding shares of Pandora that Sirius XM does not currently own will receive a fixed exchange ratio of 1.44 Sirius XM shares newly issued for each share that they hold. This price will be based on the 30-day volume weighted average price of $ 7.04 per Sirius XM common share, the implied price of Pandora's common shares being $ 10.14 per share, a premium of 13%. , 8% on a weighted volume over 30 days. average price.
This agreement could provide investors with a model on how Liberty Media (LSXMA) (LSXMK) could approach Sirius XM when it will take Liberty time to take its stake in Sirius XM from about 72% to full ownership. I've been arguing with some readers for a while that the "bonus" that Sirius XM could get will be minimal. In the Pandora agreement, Sirius XM pays only a premium of 13.8%. The value of the transaction is not immediate and has never been. The value is longer term.
An interesting dynamic in the agreement is that Pandora can turn to other potential contenders. From Pandora's point of view, that makes sense. On the Sirius XM side, a higher bid would in any case have added value, since Sirius XM already has a stake in Pandora. It is highly likely that no higher bid will come and that this transaction will be transmitted in a timely manner once the regulators and shareholders of Pandora have had the opportunity to approve it.
As part of this announcement, guidelines were issued for both companies:
Sirius XM reiterates its outlook for the year 2018
Sirius XM reiterated its forecast for the year 2018 provided on July 25, 2018, with net additions of self-paid subscribers of about 1.15 million; revenues of more than $ 5.7 billion; Adjusted EBITDA of approximately $ 2.175 billion and free cash flow of approximately $ 1.5 billion.
Pandora reiterates the guidelines for the third quarter of 2018
Pandora reiterated its guidance for the third quarter of 2018 provided on July 31, 2018, with revenues of $ 390 million to $ 405 million and Adjusted EBITDA of $ (25) million to $ (10) million.
What investors should consider
Sirius XM was already working well before this transaction. Wall Street is planning a big move for a while, and now it's ahead of us. This transaction, expected to close in the first quarter of 2019, will provide some very interesting valuations as we move forward. The ultimate game remains the acquisition of Sirius XM by Liberty Media, and the temperature on these types of discussions is expected to increase. This operation places a bit of course on Pandora and could lead to a short-term decline in Sirius XM. This is a fairly standard behavior when these types of transactions occur. Savvy investors will see the value in the coming year and take the opportunity to acquire more Sirius XM titles or Liberty Sirius XM titles, regardless of the trough. Sirius XM was already a major player in audio entertainment, and it was getting more and more serious! Stay tuned!
Disclosure: I am / we are long SIRI, LSXMA, LSXMK, P.
I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.
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