If Sirius XM Radio (NASDAQ:SIRI) has been doing more than just flirting with Pandora (NYSE:P) over the past year, it's on the clock to get on bended knee. Pandora announced after Monday's market close that it has lined up $150 million in financing from private equity giant KKR.
The financial commitment will help beef up Pandora's balance sheet, but the dilutive nature of the convertible bonds tethered to the financing will likely freeze out a potential suitor in the near term. It makes more sense to buy Pandora at a premium now than to wait until it also has to pay KKR a premium for its convertible stake.
Pandora is making things interesting. It will explore potential strategic alternatives -- including the oft-speculated sale of the company -- in the 30 days leading up to the financing. If Sirius XM doesn't want to see Pandora get saddled with convertible debt or possibly taken to the altar by somebody else it will need to make a springtime bride out of the streaming music pioneer.
Sad love songs
The market doesn't seem to think that a buyout is coming. The shares dipped into the single digits on Tuesday for the first time since mid-May of last year. Pandora's own lousy numbers and problematic guidance didn't help, but obviously the stock doesn't recoil like a frightened turtle if it thinks setting the clock would smoke out a suitor.
Pandora would look good on Sirius XM's arm. Sirius XM has failed to gain serious traction outside of receiver installations in cars. Pandora's audience is getting thinner -- going from 79.4 million active listeners consuming 5.52 billion hours of audio during last year's first quarter to 76.7 million active listeners streaming 5.21 billion hours of content this time around -- but it's still the largest music-streaming audience outside of Spotify.
There's no reason for Spotify to put itself on the market, and most of the other on-demand music players are tech giants with larger agendas at stake. Pandora even in its present meandering state would be better than starting from scratch.
Sirius XM reportedly offered $15 a share for Pandora last summer. Pandora presumably held out for more, but it's not likely to be pickier now. It's fair to say that most Pandora shareholders would be tickled to get a roughly 50% premium these days.
Pandora entered the on-demand market in March, too late to move the needle during the first quarter. However, with ho-hum guidance provided by Pandora on Monday, it doesn't seem as if Pandora Premium is off to a strong start. Sirius XM could change that. Pandora has the audience, and Sirius XM excels at convincing people to pay up for audio content.
A deal is unlikely to happen, according to the stock's reaction by hitting a 51-week low on Tuesday. The pairing still makes sense, and in the next few weeks, we'll know if it's ever going to happen.