SiriusXM Holdings Inc. today announced a deal to acquire internet radio company Pandora Media Inc. for $3.5 billion in an all-stock deal.

The offer may not be final. CNBC reported that the acquisition agreement includes a “go-shop” clause that allows Pandora to solicit and potentially enter into negotiations with parties that may be interested in acquiring the company at a higher price.

Combined, the two companies would be the world’s largest audio entertainment company, with more than $7 billion in combined revenue. A deal would also bring together SiriusXM’s 36 million subscribers with Pandora’s more than 70 million monthly active users.

Founded in 2000, Pandora offers customized radio streams that play music and entertainment based on user preferences. The company was an innovator in the market and, for much of the first decade of the 2000s, the dominant music streaming service.

The company went public in June 2011 with a 46 percent pop in its share price on its opening day. But by then, a new type of competition was already on the horizon as Spotify, which had been founded in 2006, led the creation of on-demand music streaming.

While different products, both serve a similar audience. Apple Inc. and Google LLC have also entered the market with similar features as Pandora in that they can deliver a digital radio station based on a user’s interest.

By February 2016 Pandora had started to struggle and was rumored to be shopping itself to potential buyers. But in July 2016, it was reported to have rejected a takeover offer of $15 a share from Liberty Media Corp. It’s not clear whether shares in 2016 have the same value as in 2018 since they may have been diluted, but the SiriusXM deal values Pandora at $10.14 per share.

SiriusXM came on board as an investor in Pandora, taking a 16 percent stake in the company for $480 million in June 2017. That means the $3.5 billion acquisition price is a $500 million premium over what the company was valued at that time.

“The powerful combination of SiriusXM’s content, position in the car, and premium subscription products, along with the biggest audio streaming service in the U.S., will create the world’s largest audio entertainment company,” Pandora Chief Executive Officer Roger Lynch said in a statement. “This transaction will deliver significant value to our stockholders and will allow them to participate in upside, given SiriusXM’s strong brand, financial resources, and track record delivering results.”

Presuming there are no other buyers, the deal is expected to close in the first quarter of 2019.

Photo: bnpositive/Flickr