Acquisitions and Restructurings
|12 Months Ended
Dec. 31, 2020
|Business Acquisition [Line Items]
|Acquisitions and Restructurings
(5) Acquisitions and Restructurings
Sirius XM Holdings acquisition of Stitcher
On October 16, 2020, Sirius XM Holdings acquired certain assets and liabilities of Stitcher, a leader in podcast production, distribution, and ad sales, from The E.W. Scripps Company and certain of its subsidiaries (“Scripps”) for $272 million in cash, which includes a working capital adjustment. The agreement provides that Sirius XM Holdings will potentially make up to $60 million in additional contingent payments to Scripps based on Stitcher achieving certain financial metrics in 2020 and 2021. The total purchase consideration of $296 million includes $30 million related to the acquisition date fair value of the contingent consideration, partially offset by working capital adjustments of $6 million. The fair value of the contingent consideration was determined using a probability-weighted cash flow model and will be remeasured to fair value at each subsequent reporting period. Stitcher is included in the Pandora reporting unit. In connection with the acquisition, Sirius XM Holdings recognized goodwill of $218 million and intangible assets subject to amortization of $38 million. The goodwill of Stitcher is deductible for tax purposes as it was an asset acquisition.
Sirius XM Holdings recognized $4 million of costs related to the acquisition of Stitcher during the year ended December 31, 2020. The acquisition of Stitcher was financed through borrowings under Sirius XM Holdings’ Senior Secured Revolving Credit Facility.
Sirius XM Holdings acquisition of Simplecast
On June 16, 2020, Sirius XM Holdings acquired Simplecast for $28 million in cash. Simplecast is a podcast management and analytics platform. Simplecast complements AdsWizz’s advertising technology platform, allowing Sirius XM Holdings to offer podcasters a simple solution for management, hosting, analytics and advertising sales, and is included in the Pandora reporting unit. In connection with the acquisition, Sirius XM Holdings recognized goodwill of $17 million, intangible assets subject to amortization of $12 million, other assets of less than $1 million and deferred income tax liabilities of $1 million. The goodwill of Simplecast is not deductible for tax purposes. Sirius XM Holdings recognized less than $1 million of costs related to the acquisition of Simplecast during the year ended December 31, 2020.
Sirius XM Holdings restructuring of Automatic Labs
In May 2020, Sirius XM Holdings terminated the Automatic Labs Inc. ("Automatic") service, which was part of its connected services business. During the year ended December 31, 2020, Sirius XM Holdings recorded $24 million of restructuring expenses related to the termination of the service. The termination of the Automatic service does not meet the requirements to be reported as a discontinued operation because the termination of the service does not represent a strategic shift that will have a major effect on our operations and financial results.
Sirius XM Holdings acquisition of Pandora
On February 1, 2019, Sirius XM Holdings purchased all of the outstanding shares of 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 final 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 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. See note 8 for disclosures regarding the impairment of a portion of Pandora’s goodwill during the year ended December 31, 2020. 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 $1,287 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.
Sirius XM Holdings recognized $84 million of costs related to the acquisition of Pandora during the year ended December 31, 2019.
The amounts of revenue and net loss of Pandora included in Liberty’s consolidated statement of operations since the date of acquisition were $1,607 million and $303 million, respectively, for the year ended December 31, 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.