Pandora (NYSE:P) is hitting the "last dance" phase of its life as a stand-alone public company, and if anyone wants to outbid Sirius XM Radio (NASDAQ:SIRI) for the streaming music pioneer they better speak up soon. Sirius XM announced the all-stock deal initially valued at $3.5 billion on Monday.
Sirius XM didn't offer much of a premium for Pandora, and with the satellite radio operator's stock taking a hit on Monday the markup narrowed even more. Sirius XM is exchanging every share of Pandora with 1.44 shares of its own stock, a deal that was worth $10.05 a share for Pandora investors when the deal was announced -- but down to $9.01 by Monday's close. Shares of Pandora entered the week priced at $9.09.
If anyone wants to sweep Pandora off its feet with a sweeter offer, the stage is set. Come in and make a low double-digit offer and it will be hard for the board to stick to the original plan. However, that just doesn't seem likely. RBC Capital analyst Mark Mahaney doesn't see this turning into a bidding war. He argues that Spotify (NYSE:SPOT), Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and Amazon.com (NASDAQ:AMZN) are unlikely to step up to the plate at this point. He's right.
Boxing out the competition
Spotify and Apple wouldn't mind having access to Pandora's 71.4 million active listeners, giving them a way to pad the subscriber base for their premium services. Amazon and Alphabet's Google have yet to see big bets in digital music pay off, so acquiring Pandora would make either tech titan a force. Ultimately, a deal isn't worth it in any of the four scenarios.
Spotify is a global juggernaut with 83 million paying subscribers and 180 million monthly active users. Apple Music's stateside dominance is notable. It recently passed Spotify in total U.S. premium subscribers. Pandora consists largely of freeloaders, and that's problematic. They're not going to gravitate to Spotify or Apple Music and start paying just because Pandora got acquired, just as they're not going to magically transform themselves into satellite radio subscribers for Sirius XM. Less than 10% of Pandora's audience pays, and the last thing that Spotify needs is to try to monetize more free airplay. Apple doesn't have a free offering outside of the initial trial service.
Amazon and Alphabet's Google would approach Pandora differently. They would love to attract premium subscribers, but at this point they just wouldn't mind having freeloaders instead. Pandora's free platform is based on ads, and no one does that better than Alphabet. Amazon's no slouch when it comes to getting advertisers noticed, but the bigger draw there would be selling products and digital services to Pandora's captive audience. They would probably be more logical buyers of Pandora than Spotify or Apple, but don't expect either one to raise a bidding card in the coming weeks.
The biggest thing that will likely keep all publicly traded parties away is the market's reaction to the deal on Monday. Sirius XM surrendered $3.2 billion in market cap after announcing that it would swap roughly $3 billion of its stock for the 85% stake in Pandora that it doesn't effectively own. Is the market essentially saying that Pandora is worth less than worthless?
Pandora is not a bad company, but if Sirius XM takes a big hit for an acquisition that makes sense just imagine how Spotify, Apple, Amazon, or Alphabet would be treated if they should offer even more for the streaming music pioneer. It's not going to happen. The deal between Pandora and Sirius XM may fall apart or need to be reworked if Sirius XM stock continues to slip, but this will only make it less likely that a leading streaming service or online tech giant jumps in to grab Pandora as a dance partner.