NEW YORK -- Subscription radio company SiriusXM suffered its worst stock plunge in more than seven years after it announced Monday it's buying music streaming service Pandora Media Inc.
Sirius fell 10 percent to $6.26, the worst one-day performance since August 2011. Pandora shares also declined, falling 1.2 percent to $8.98 in New York.
The all-stock deal, valued at about $3.5 billion, will allow Sirius to expand its service beyond cars and into homes and other mobile areas, and put the company in more direct competition with Spotify Technology SA.
Sirius has more than 36 million subscribers in North America, while Pandora has more than 70 million monthly active users.
Pandora stockholders will receive 1.44 newly issued SiriusXM shares for each Pandora share they own. Pandora has a "go-shop" period in which it can solicit other offers from third parties.
Both companies' boards have approved the transaction, which is expected to close in 2019's first quarter. It still needs approval from Pandora shareholders.
On a conference call with analysts, Pandora and Sirius offered little detail about how they would work together after the merger. Sirius Chief Executive Officer Jim Meyer spoke vaguely about "optimizing cross-promotion" between platforms. "My gut tells me -- that's where I see the biggest opportunity," he said.
Sirius, backed by billionaire John Malone, is betting it can expand beyond an audience that mainly listens to satellite radio while driving. Sirius bought a stake in Pandora last year for $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 $10.14 a share. It's 12 percent more than the closing price on Friday, but way below levels of four years ago -- before the stock tanked as competition from Spotify and Apple Music intensified. Matthew Thornton, an analyst at SunTrust Banks Inc., called the price "underwhelming."
Malone has been working to build a radio empire, complementing the pay-TV assets that helped him build his fortune. Another of of the billionaire's companies, Liberty Media, has expressed interest in acquiring iHeartMedia Inc., the U.S. radio broadcaster that filed for bankruptcy earlier this year.
Sirius 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.
But a comeback has been in the works. Pandora introduced its own on-demand music service and brought in former Sling TV CEO Roger Lynch a year ago to work on a turnaround. At the end of the second quarter, the company had about 6 million paying customers. That's helped the stock recover this year, gaining 89 percent through Friday's close.
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 $52.5 million breakup fee. If the deal fails for other reasons, the breakup fee is $105 million.
Information for this article was contributed by The Associated Press and by Zachary Tracer, Scott Moritz and Lucas Shaw of Bloomberg News.
Business on 09/25/2018