The music industry has long featured surprising team-ups -- former Police frontman Sting and the perpetually "boombastic" reggae artist Shaggy put out an album together this year, for example. But Monday, that duo was knocked out of the running for most interesting musical pairing of 2018 by news that Sirius XM (NASDAQ:SIRI) was purchasing Pandora for $3.5 billion in stock.

In this segment from the Market Foolery podcast, host Mac Greer and senior analyst Matt Argersinger discuss the deal, which had long been seen as a possibility, given that the satellite radio business already owned a 15% share of the music streamer. Sirius shares sank on the news, but there's reason to believe that the post-merger whole really will be greater than the sum of its parts.

A full transcript follows the video.

This video was recorded on Sept. 24, 2018.

Mac Greer: Let's begin with the big deal of the day: Sirius XM is buying Pandora in a $3.5 billion all stock deal. Sirius XM already owned 15% of Pandora. They're just buying up the rest. Shareholders, not too fired up. Sirius XM shares down around 8% at the time of our taping. Now, you're a Pandora shareholder. How are you feeling?

Matt Argersinger: I don't know how I'm supposed to feel, Mac. [laughs] It's been a long, tough several years for Pandora. I've been a shareholder for several years now. You kind of knew the potential for this was real just because Sirius XM had the minority stake. There was always talk about them buying up the rest and merging the companies. As a Pandora shareholder, I feel like this is just the end of a sad story. At least I have an end to it now.

Greer: It's a sad song, if it were a song.

Argersinger: Right. And the question is, since it's an all stock deal, how excited am I about owning Sirius XM shares? I guess I'm somewhat more excited, if I'm a Pandora shareholder going into Sirius XM. Sirius XM has 36 million paid subscribers. It's a pretty successful business. We talked about before the show, a business that was really close to death. What did it trade for?

Greer: It got down to around $0.11 in 2009. It was a penny stock, right?

Argersinger: It was the very definition of a penny stock. And it was loaded down with debt. But it's come back and it's very successful. One of the reasons is because it has those long-standing relationships with the car manufacturers. Generally, if you buy or rent a car, these days, you have the option of getting Sirius XM. And it's proving to be a very popular option. You get it for free for the first trial period, and then a lot of users are converting to it. They like it. I like it. I actually have Sirius XM on one of my cars.

You have the 36 million paid subscribers for Sirius. Then, you have 70 million monthly active users for Pandora. I think the idea is, for Sirius, if we can get a good portion of those 70 million active users -- now, I know Pandora already has six million paying subscribers. But I think what they're really going after is how many of those active users that are just listening to Pandora for free with ads, how many can we convert to a paid subscription in a combined Sirius XM-Pandora app?

I think they think, given the amount of library that we have in Pandora, but then combining it with Sirius, which has, of course, sports and comedy and live events and music, it could be a pretty compelling product. It might compete with the likes of Spotify, Apple, Amazon, some of those massive platforms. They're obviously big competitive threats.

Greer: Let's talk about that a bit more. You mentioned the stock, let's round that out. Sirius XM shares trade for north of $6 now. So, $0.11 in 2009, to north of $6. I remember talking to our very own Steve Broido, who bought the shares of Sirius XM when they were a penny stock. I remember thinking, "That's crazy!" And typically, normally, it is. Right? Most penny stocks go to zero.

Argersinger: 99 out of 100.

Greer: So this is the exception to the rule.

Argersinger: Very big exception.

Greer: But I think when you look back at Sirius XM, one clear differentiator in terms of their programming, Howard Stern. I think you could very much make the argument that Howard Stern single-handedly saved this company.

Argersinger: Yes. And they paid him hundreds of million dollars to do it.

Greer: And it was a great investment, right?

Argersinger: Oh, yeah, it was.

Greer: But Howard is going to retire at some point. Obviously, they'll have that content for a certain number of years, and they can replay that content just like the replay Casey Kasem. I listen to the top 40 from the 70s, that's my guilty pleasure on weekends. But going forward, if Howard's not in the picture, what is Sirius XM's special sauce when they're competing with the likes of an Apple or a Spotify?

Argersinger: Well, it's going to be tough. I think the deal here is, Sirius and Pandora face tremendous royalty costs for artists, for labels, to comedians, and things like that. If you scale that out -- in other words, you combine these two fairly rich libraries of content -- and you really streamline your costs, because now you're spreading your costs over a much larger subscriber base, I think they can have a pretty compelling offer. Especially when you link it to the cars or people who are on the go where radio is just not a great option. It can be really compelling option. So now, if I combine that with my Pandora music, it's something I think a lot of users are willing to pay for. Really, to make this deal work, you don't need a huge percentage of that 70 million active user base of Pandora to convert over before it starts looking like a good deal.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.