Pandora Media’s Days may be Numbered
It’s looking like Pandora Media Inc (NYSE:P) is open to being acquired, as the provider of streaming music has been attracting private equity investments, along with renewed talks of a takeover from Sirius XM Holdings Inc. (NASDAQ:SIRI).
The irony of the takeover discussions is that Pandora Media actually had rejected a bid of around $3.4 billion (or $15.00 per share) from Sirius back in July 2016, when P stock was trading at $12.
So, here we are again, with Sirius asking Pandora Media to open the door.
Pandora Media’s days as an independent may be coming to an end, as the fiercely competitive music streaming sector is dominated by Spotify AB and Apple Inc (NASDAQ:AAPL), who are able to turn users into revenue, something that Pandora Media has struggled with.
Chart courtesy of StockCharts.com
Trading at $9.30, P stock is off 23% from the initial Sirius bid, but whether a new bid will emerge and surpass the old bid is unknown.
The reality is that Pandora Media has to do something to stop the current bleeding that has seen losses accelerate from $30.40 million in 2014 to $342.98 million in 2016. The next two years don’t look that much better, as the losses are predicted to continue.
Pandora Media cannot seem to turn things around, despite the fact that the company has about 76 million users. The company is having difficulty turning the user numbers into revenue.
The massive user base at Pandora Media is attractive for a company like Sirius (or even Apple), which has far fewer subscribers, at around 20 million. With about $250.0 billion in free cash, Apple could easily swallow P stock and then try to convert the users into paying customers.
P Stock Could Be Acquired at $15
Whether Sirius can do better is unknown but, for Pandora Media stock, it is now the eighth inning, and something has to be produced.
There has been more private equity heading into P stock, including a $150.00 million investment from KKR & Co. L.P. (NYSE:KKR) and an additional equity investment from Point72 Asset Management, L.P. in May. Point72, under the direction of CEO Steve Cohen, has a 5.4% stake in Pandora Media stock.
The money flow into P stock from private equity suggests that big changes will materialize, as these two leading private equity firms know how to make money.
We could see Pandora Media use the $150.0-million injection to continue to try to remedy the business but, if I were a betting man, my thinking is that a takeover at a premium would be the ideal route.
The question is: how much will Pandora Media accept, given that it already rejected $12.00-a-share offer in July 2016? It could be less or more, or it could be a combination of stock and cash.
A bid of $12.00 for Pandora Media stock is not unreasonable, given that the stock traded at a 52-week high of $14.98, and at a higher high in March 2014 of $40.00.
A higher price could also surface, depending on how valuable the acquiring company views the user base and the ability to monetize it.