Sirius XM's US$3.5bn Tie-Up With Pandora Spurs Stock Plunge

New York-based satellite radio broadcaster Sirius XM Holdings’ (Nasdaq: SIRI) US$3.5bn purchase of streaming music firm Pandora Media (NYSE: P) has dented the perception of the company’s merger-related earnings prospects.

SIRI said the deal, conducted as an all-stock transaction, is expected to fetch more than US$7bn in pro-forma revenue in 2018, as well as certain long-term growth opportunities, including an expanded footprint beyond vehicles into homes and other mobile areas.

The transaction follows SIRI’s US$480m strategic investment in P, which it completed in September 2017. At the closing of the stake purchase, SIRI’s management had already begun to migrate into its target’s ranks.

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SIRI’s chair Gregory Maffei, CEO James Meyer and CFO David Frear were each named to P’s board, with Maffei named P’s chair.

Meyer said that through the merger, “there are significant opportunities to create value for both companies' stockholders by combining our complementary businesses. 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.”

Meyer continued that by targeting investments, “we see significant opportunities to drive innovation that will accelerate growth beyond what would be available to the separate companies, and does so in a way that also benefits consumers, artists, and the broader content communities.”

Looking at growth

SIRI’s growth has been decent, and its debt levels have remained relatively stable.

At the end of June 2018, the company posted total long-term debt obligations of about US$6.44bn, down from more than US$6.74bn at the end of 2017. Furthermore, in the second quarter of 2018, SIRI generated a 6% year-on-year rise in revenue to US$1.4bn, with diluted earnings per share up almost 50% to US$0.06, and free cash flow up 17% to US$486m. 

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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