Pandora Shareholders Will Reject SiriusXM Offer for ‘Inadequate’ Terms, Predicts Analyst
Monday’s sell-off of SiriusXM stock sent the shares plunging 10.3 percent, and that had Wedbush Securities analyst Michael Pachter forecasting in a Tuesday research note that Pandora shareholders will reject as “inadequate” the Sirius proposal to buy the streaming-media company for $3.5 billion in an all-stock deal (see 1809240030). Sirius and Pandora executives said Monday they expect the transaction to close in Q1.
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Pandora shareholders will receive 1.44 newly issued Sirius shares for each Pandora share they own at an “implied price” of $10.14 a share, said Pachter. “Given that the exchange ratio is fixed,” Monday’s sell-off reduced the implied deal price to just above $9 a share, or nearly 1 percent lower than Pandora’s closing price Friday when the terms for Pandora shareholders were set, he said: “We think that shareholders will reject the deal as inadequate, and will require the terms of the deal to be re-negotiated.” Sirius and Pandora representatives didn’t comment Tuesday. Pandora and Sirius shares closed Tuesday virtually unchanged from a day earlier, Pandora at $9.01, Sirius a penny higher at $6.27.
Sirius “could have easily divested a large cash component” in the offer, said its Chief Financial Officer David Frear when asked on a Monday conference call with analysts why the deal was structured as an all-stock transaction. “The trouble with a cash component is you’re reducing the equity upside for Pandora shareholders.” Pachter said Pandora shareholders would own 8.6 percent of the combined entity.
Pachter rates the deal as a win-win for both partners, he said. Sirius would benefit from Pandora’s “user base, streaming expertise, and technical acumen,” while Pandora would benefit from the “superior financial footing, subscription expertise” and OEM relationships at Sirius, he said. Sirius also could “leverage Pandora to grow its user base beyond its current vehicle sweet spot,” and Pandora’s service “would enhance the interactivity of the combined company’s product portfolio through on-demand radio and greater customization of the listening experience,” he said. Sirius CEO Jim Meyer wants to use streaming to boost subscriber “engagement” with the service “outside of the car” (see 1807250036).
In light of Pandora’s “history of losses” and the “intense competitive environment” in the streaming-music space, Dougherty's Steven Frankel rates the “offer as fair” for Pandora shareholders. Frankel wrote investors he doesn't expect “competing bids” during the fixed, short-term “go shop” provision.
Pandora is free to walk away from the deal if it pays Sirius $105 million in termination fees, said an SEC filing Monday. It’s obligated to pay Sirius only $52 million if it walks away to accept a competing bid by Nov. 22, said the filing. Adding the go-shop provision to the contract “was an important component for our board as part of the negotiation,” said Pandora CEO Roger Lynch on the Monday call. “We obviously can’t speculate on whether anything will emerge from that or not.”