Sirius XM Holdings Inc. (SIRI - Get Report) agreed to buy music-streaming service Pandora Media  (P) for $3.5 billion in an all-share deal that marks yet another shakeup in the U.S. media and entertainment sector.

Pandora shareholders will get 1.44 newly-issued SiriusXM shares for each Pandora stock, the companies said, a fixed exchange rate that factors in SiriusXM's existing 15% holding of convertible preferred shares. Pandora shareholders would own around 8.6% of the combined group on a fully-diluted basis, according to SEC filings, and the combination will create world's largest audio entertainment company, the pair said, with 2018 pro-forma revenues of around $7 billion.  

"We've made tremendous progress in our efforts to lead in digital audio. Together with SiriusXM, we're even better positioned to take advantage of the huge opportunities we see in audio entertainment, including growing our advertising business and expanding our subscription offerings," said Pandora CEO Roger Lynch. "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 shares surged 12% in pre-market trading Monday following news of the deal, before paring that advance to 4.6% after the opening bell to change hands at $9.51 each, a move that takes the stock to its highest level in 16 months and extends its year-to-date gain to to around 110%. Sirius shares were seen 5.3% lower at $6.61 each, trimming their year-to-date gain to around 26%.

The combined group would have around 40 million global audio subscribers, based on the second quarter earnings figures, with SiriusXM getting around $13.30 in average revenue from its 33.5 million customers and Pandora getting $6.52 from its 5.98 million subscribers.

Spotify Inc. (SPOT - Get Report) , the biggest music streaming provider in the world, added 8 million new subscribers in the three months ending in June, the company said, taking its total past 85 million.

Action Alerts Plus holding Apple Inc. (AAPL - Get Report) has "well over 50 million listeners "when you add our paid subscribers and the folks in the trial" to its Apple Music service, CEO Tim Cook told investors last month after the group's second quarter earning, "so we're moving along at a very, very good rate."

SiriusXM, which is controlled by John Malone's Liberty Media, had overall second quarter revenues of $1.432 billion, up 6.3% from the same period last year, while Pandora booked an 11.7% increase which took its second quarter total to $385 billion.