Sirius XM Holdings (SIRI  ) announced on Monday it reached a deal to acquire online streaming service Pandora Media (P  ).

Sirius agreed to deliver stock currently worth about $3.5 billion to fully acquire Pandora. The deal will create the world's largest audio entertainment company. Sirius, which was formed after a merger of Sirius and XM satellite radio services in 2008, has 36 million subscribers in North America.

The company, which already owns about 15% of Pandora, said it would maintain both the Sirius XM and Pandora brands and services. But it also appeared to leave open the possibility of a shift, saying only that there would be "no immediate change in listener offerings." SiriusXM hopes the deal will help it diversify its business outside of car radio subscriptions.

"Through targeted investments, we see significant opportunities to drive innovation that will accelerate growth beyond what would be available to the separate companies, and does so in a way that also benefits consumers, artists, and the broader content communities," SiriusXM CEO Jim Meyer said in a statement. "Together, we will deliver even more of the best content on radio to our passionate and loyal listeners, and attract new listeners, across our two platforms."

That said, the deal may have its fair share of drawbacks. While management is correct about the benefits of the all-stock deal, some investors believe that Sirius XM appears to be overpaying for a low-quality enterprise with limited long-term potential.

Including net debt, the entire purchase by Sirius XM of Pandora is expected to cost shareholders around $3.5 billion, but immediately after the announcement, shares of Sirius XM sank, closing down September 24th by 10.3%. Even after Pandora dropped 1.2% in response to the announcement, the deal as-is implies no significant premium for investors who decide to buy into Pandora now.

Pandora stock, which was down 35% for the year when they left, has nearly doubled since then, partly in anticipation of a purchase. The company still lost $221 million in the first half of the year, although that was down 43% from the first half of 2017.

In exchange for each share of Pandora that investors own, Sirius XM will be giving 1.44 shares of itself. Given the $6.98 share price that Sirius XM was trading for prior to the transaction's announcement, this implied a price for Pandora of $10.05 per unit, representing a premium of 10.6% over where Pandora's stock closed at previously.

Shares of SiriusXM stock closed down about 10% on Monday. Pandora stock closed down about 1%.