What: Shares of Pandora Media (NYSE: P) gained 18.7% in May 2016, according to data from S&P Global Market Intelligence. It was hardly a smooth ride, starting out with a 12% plunge in the first two days of the month. Then the buyout rumors started, sparked by a pushy activist investor, and Pandora's stock took off.
So what: Pandora had ended April on a high note, rising 5% on the last trading day thanks to a strong earnings report. The early letdown in May looked like a mix of short-term profit taking and investors changing their minds about the quality of that first-quarter report. Prices wobbled for a few days with no significant news on tap, and then stabilized around the starting price from early May.
Then, on May 16, hedge fund Corvex Management disclosed a 9.9% share of Pandora's voting stock. Corvex doubled its Pandora stake in the space of six weeks, becoming the company's largest shareholder. And the fund is not content with just sitting on its Pandora shares. Corvex had been talking to Pandora executives and would prefer the company adopt a new strategy. Specifically, Corvex wants Pandora to look for a buyer and unlock shareholder value through a high-priced sale of the company.
From there, Pandora shares have only been climbing as investors consider the potential for a generously priced buyout.
Now what: Recently, a firm co-owned by Pandora Chairman Jim Feuille increased its Pandora holdings by 3.6%. That's a modest vote of confidence in the proposed sale strategy.
My Foolish colleague Rick Munarriz came up with three potential Pandora buyers that would make sense. Meanwhile, fellow Fool Andrew Tonner analyzed the situation and failed to find a sensible buyout partner. Personally, I see how Pandora could add business quality to a deep-pocketed buyer that's missing a digital media component. One of the major telecoms could make a play, or any of the leading social networks. Anyone already involved in music streaming and sales would only muddle its existing strategy, undermining the value of Pandora's services.
Neither Pandora's board nor Corvex Management has come up with any firm offers so far, leaving all of this in the realm of speculation. As a Pandora shareholder myself, I would be content with a media-free buyer as outlined above -- but I'd still prefer to see Pandora go its own way and build a stand-alone music business for the long term.