Wall Street may have liked the deal that resulted in Sirius XM Radio (SIRI +0.00%) investing $480 million in Pandora (P +0.00%) at first, but it had a different opinion on the recipient after thinking it over. Initial gains for Pandora stock were dashed -- and then some -- as the stock plunged 17.96% last week.
The New York Post kicked off the pessimism party with an article detailing how the play-by-play reportedly panned out. Its sources claim that Sirius XM, through controlling stakeholder Liberty Media (LSXMA +0.00%), went from initially offering $15 a share last summer to $8 a share last week before opting for a financial convertible preferred stock stake that will translate to a 16% to 19% piece of Pandora.
Image source: Pandora.
Turning down the volume
Analysts were torn on Pandora's prospects after the capital infusion. Jason Helfstein at Oppenheimer downgraded the stock last week, taking his rating from outperform to perform. Helfstein feels that Sirius XM's investment and the $200 million sale of Ticketfly in a separate transaction will free Pandora to focus on its core advertising business. Pandora will rid itself of the distraction of trying to integrate ticket sales through its platform, and between the two deals it will have more than enough money to pay off record labels and their escalating fee requirements. However, he feels that this deal effectively ends Pandora as a buyout play. Helfstein feels that it will take some time for Pandora to beef up its ad technology, staff, and in-car technology now that it's likely to remain an independent company.
Barton Crockett at FBR Capital went the other way, upgrading the stock to outperform. He feels that there's upside now that investor expectations are low. The presence of Liberty Media's John Malone and Greg Maffei should also help. However, Crockett is also lowering his price target from $14 to $11 given its present situation.
Matthew Thornton at SunTrust is sticking to his bullish opinion and his $10.50 price target. He feels that the presence of Sirius XM and Liberty Media on Pandora's board is a positive, but he did voice his concerns about the unsettling report that Sirius XM was only willing to pay $8 a share to buy all of Pandora. Thornton is also worried that some big Pandora shareholders may cash out now.
Sirius XM's deal with Pandora may improve its long-term prospects, but the speculative buzz that was driving the stock higher when buyout chatter percolated is gone.
