We're now days away from a vote that could turn a pair of high-tech audio entertainment giants into a single next-gen radio powerhouse. Pandora Media (P) shareholders will be voting on Tuesday on a deal to be acquired by Sirius XM Holdings (SIRI -3.42%).
The corporate pairing -- originally announced four months ago -- will exchange every share of Pandora for 1.44 shares of Sirius XM if approved. The vote would pave the way for the two companies to officially join forces during the current quarter.
Two solo acts form a duet
The union is highly likely to happen. Pandora directors and executives own a surprisingly small 0.4% stake of the votes, but Sirius XM itself purchased enough preferred stock in 2017 to have a 15.1% say in Pandora's future. The combined 15.5% position has already pledged support for the deal. It would take just a little more than 40% of the rest of the shares to vote for the deal to make it happen.
Arbitragers taking big positions in the company will also naturally be voting for the deal. The deal values Pandora at $8.41 as of Wednesday's close, and the shares closed at $8.34. Every penny counts for that game.
There are also plenty of Pandora investors concerned about the platform's long-term viability. Sirius XM offers more than just a way out. Sirius XM is profitable and growing its audience, two boxes that Pandora can't check off on its dating profile these days.
Sirius XM also offers Pandora its best shot at growing. The pairing makes sense. Sirius XM excels at getting folks to pay for audio entertainment, something that Pandora is just starting to explore. Each company will also expand the other's audience as well as advertiser pool.
This will be Sirius XM's show to run if the deal goes through -- Pandora shareholders will receive only 8.2% of the combined company. But it's a fair deal, given Sirius XM's much larger revenue base and consistent free cash flow and earnings.
It's not the only reason why Pandora shareholders would be marrying well by voting in favor of the deal. Sirius XM stock has been one of the market's best performers over the past decade. The shares have generated positive returns for 10 years in a row. There's also a small but growing quarterly dividend that they will inherit.
Pandora commands a larger fan base -- 68.8 million active users as of the end of September -- but that audience has been shrinking with every passing quarter. Most of them are also freeloaders, unlike Sirius XM's user head count that now tops 34 million. Pandora will make Sirius XM better. Sirius XM will make Pandora better. More than half of Pandora's existing stakeholders aren't likely to see the situation differently.
Check out the latest Sirius XM Radio earnings call transcript.