|9 Months Ended|
Sep. 30, 2019
SIRIUS XM Holdings acquisition of Pandora
On February 1, 2019, SIRIUS XM Holdings purchased all of the outstanding shares of Pandora Media, Inc. (“Pandora”) for $2.4 billion, by converting each outstanding share of Pandora common stock into 1.44 shares of SIRIUS XM Holdings common stock and by cancelling SIRIUS XM Holdings’ investment in Pandora’s preferred stock with a fair value of $524 million, for total consideration of approximately $2.9 billion. Net cash acquired by SIRIUS XM Holdings was $313 million. Pandora operates an internet-based music discovery platform, offering a personalized experience for listeners.
The table below shows the value of the consideration paid in connection with the acquisition (in millions, except for exchange ratio and price per share of SIRIUS XM Holdings common stock):
The preliminary acquisition price allocation for Pandora is as follows (in millions):
(a) In order to present the assets acquired and liabilities assumed, the conversion feature associated with Pandora’s convertible notes for $62 million has been included within long-term debt in the table above and included within noncontrolling interest in equity of subsidiaries within the condensed consolidated statement of equity. See note 9 for details regarding Pandora’s convertible notes.
Goodwill is calculated as the excess of the consideration transferred over the identifiable net assets acquired and represents synergies and economies of scale expected from the combination of services. None of the acquired goodwill is expected to be deductible for tax purposes. Pandora’s amortizable intangible assets are comprised of customer relationships and software and technology, with estimated weighted average useful lives of 8 years and 5 years, respectively. The fair value assessed for the majority of the remaining assets acquired and liabilities assumed equaled their carrying value. Additionally, in connection with the acquisition, SIRIUS XM Holdings acquired gross net operating loss carryforwards of approximately $1,284 million for federal income tax purposes available to offset future taxable income. The acquired net operating losses are limited by Section 382 of the Internal Revenue Code. Those limitations are not expected to impact our ability to fully utilize those net operating losses within the carryforward period.
As of September 30, 2019, the valuation related to the acquisition of Pandora is not final, and the acquisition price allocation is preliminary and subject to revision. The primary areas of the acquisition price allocation that are not yet finalized are related to certain current assets, contingencies and tax balances. SIRIUS XM Holdings recognized $83 million of costs related to the acquisition of Pandora during the nine months ended September 30, 2019.
The amounts of revenue and net loss of Pandora included in Liberty’s condensed consolidated statement of operations since the date of acquisition were $447 million and $47 million, respectively, for the three months ended September 30, 2019 and $1,139 million and $225 million, respectively, for the nine months ended September 30, 2019.
The unaudited pro forma revenue and net earnings of Liberty, prepared utilizing the historical financial statements of Pandora, giving effect to acquisition accounting related adjustments made at the time of acquisition, as if the acquisition of Pandora discussed above occurred on January 1, 2018, are as follows:
The pro forma results primarily include adjustments related to the amortization of acquired intangible assets, depreciation of property and equipment, acquisition costs, fair value gain or loss on the Pandora investment and associated tax impacts. The pro forma information is not representative of the Company’s future results of operations nor does it reflect what the Company’s results of operations would have been if the acquisition of Pandora had occurred previously and the Company consolidated Pandora during the entirety of the periods presented.
The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef