SiriusXM to buy Pandora in all-stock deal valued at $3.5 billion

  • The merger agreement includes a "go-shop" provision, where Pandora "may actively solicit, receive, evaluate and potentially enter negotiations with parties that offer alternative proposals."
  • SiriusXM expects the deal to close in the first quarter of 2019.

Satellite radio company SiriusXM plans to acquire music streaming service Pandora in a $3.5 billion all-stock deal unveiled Monday.

The agreement includes a "go-shop" provision where Pandora "may actively solicit, receive, evaluate and potentially enter negotiations with parties that offer alternative proposals following the execution date of the definitive agreement."

Acquiring Pandora would make SiriusXM the world's largest audio entertainment company, with over $7 billion in combined revenue expected in 2018. The deal would bring together SiriusXM's 36 million subscribers in North America and Pandora's more than 70 million monthly active users.

Pandora shares closed trading down 1.2 percent at $8.98 a share, after rising more than 10 percent in premarket trading, while Sirius stock fell 10.3 percent to $6.26 a share.

Shareholders will receive 1.44 of newly issued SiriusXM shares for each Pandora share they hold, the companies said. The implied Pandora price from this deal is $10.14 a share, or a 13.8 percent premium over a 30-day volume-weighted average price.

Pandora stock has soared nearly 90 percent during the past year. While the music streaming business is thick with competition — names such as Spotify, Amazon and Apple have their own platforms — Pandora reported a smaller-than-expected earnings loss for its second quarter and announced it had about 6 million premium subscribers.

Evercore ISI analyst Anthony DiClemente said he wouldn't rule out a higher bid for Pandora from a tech giant, but he believes "Apple and Spotify have had a chance to look at Pandora already."

"I do think once the market kind of gets a better feel for what the strategy is at the SiriusXM level, then we'll start to see the stock normalize," DiClemente said on CNBC's "Squawk Box."

SiriusXM expects the deal to close in the first quarter of 2019.

The satellite radio company signed a partnership with Netflix in July to create a comedy channel. That channel is slated to launch in January and will feature new material from comedians promoted in Netflix original content.