Today it was announced that Sirius XM (NASDAQ: SIRI) has agreed to acquire Pandora in an all-stock transaction valued at $3.5 billion. The sale will create the world’s largest audio-entertainment company.

The Deal Points

According to the release, the deal with pay current Pandora shareholders 1.44 shares of XM stock for every one Pandora share currently held. This transaction will assume a price of $10.14 for each XM share and was based on a Pandora’s 30-day volume weighted stock average. Trading on the announcement Monday was mixed with Pandora’s stock rising by 7% to $9.73 per share, while Sirius XM’s stocks slid by 4.7% to $6.65 on fears the company had overpaid in the deal.

Merging Two Huge Fanbases

The Sirius XM company was formed in 2008 when the two leading satellite radio companies of the time – Sirius and XM – merged. Currently, Sirius XM boasts more than 36 million users in North America alone, while Pandora has a reported 70 million. The Sirius bid for Pandora rounds out an acquisition that can now be seen as beginning last year when Sirius invested $480 million into Pandora, a 15% ownership stake. The merger will give the new company a reported $34 billion value, besting the $31.2 billion value of Sirius’s next closest rival, Spotify. Spotify itself filed for an IPO earlier this year.

Sirius Wants Pandora’s Fans

Sirius has long been looking to entice free-users to its platform. On a call regarding the deal, Sirius CEO Jim Meyers stated, “The truth is the majority of triallers ultimately decide not to pay for our service,” Mr. Meyer said. “As I’ve said many times, we would benefit from having a free funnel.” Of the 36 million users in North America, a reported 23 million are currently on free trials.

A Rising Tide

As more and more users consume media online, the streaming music business has risen steadily. And consumer spending in the arena is on the rise. This year alone, consumer spending on online streaming services is set to jump by a reported 29% to more than $6.6 billion. How consumers will respond to the merger of the two companies however, is still yet to be determined.