In the past there has been a lot of speculation and rumor on the Street surrounding Sirius XM's (SIRI) ex-CEO Mel Karmazin and possibilities that he may be picked up by Pandora (P). Spencer Osborne covered his ideas on the topic in a recent article here.
But with Pandora's CEO Joe Kennedy announcing Thursday that he intends to leave the company once a new CEO is found, I see another scenario as more likely. What if Joe Kennedy were to be hired by Sirius XM? To me, this is more likely and is where the speculation should be placed.
While both situations are possible, I think a brief look at each scenario quickly points to which idea is most probable. Let's take a look.
Pandora Hires Mel Karmazin
What must be considered first and foremost here is "would this make any sense?" Could Mel Karmazin drive Pandora to new heights?
Arguably, Mel had an excellent track record in the last 4 years with Sirius XM. Bringing the company back from the depths of near bankruptcy was no easy feat, and today's stock price of $3.20 from $0.05 per share at its lowest is in part a testament to Mr. Karmazin's efforts. But there would be those who point out that Sirius XM actually had a higher share price before Mel Karmazin came on board. It's a matter of perspectives, really. Some see Mel as a savior of Sirius XM, and some blame Mel, at least in part, for the mess Sirius XM got into in the first place.
Regardless of your viewpoint, would Mel Karmazin really be a good fit as CEO of Pandora? In my opinion, the answer is no.
Here's why. The first thing that comes to mind is what Mel has clearly stated in the past. "Historically I have been expensive..." and he certainly has. Sirius XM investors will be quick to point out that Mel Karmazin cashed out tens of millions of stock options in 2012 before his departure. I just don't see Mel accepting much less from another company, and to put it simply, I do not think Pandora can afford Mel Karmazin.
There's no arguing that Mel is a great negotiator, and that Mel could bring in the content that Pandora needs to differentiate itself from the eventual onslaught of IP delivered audio services, but it would likely be at a cost that is too great for a company with Pandora's valuation. On top of this, Mel has been criticized in the past for being a bit too 'old guard,' coming from a terrestrial radio background, and this may not fit well with a 'younger' company like Pandora.
On the question of whether or not investors will see Mel Karmazin as CEO of Pandora, I feel the answer is "no."
Sirius XM Hires Joe Kennedy
This is the idea that I believe has more merit to it. With Liberty Media (LMCA) now in control of Sirius XM, and James Meyer as temporary CEO, there is still a search for a more permanent figurehead at the company.
A-ha! Joe seems like the perfect fit, right? Joe has been with Pandora for nearly 10 years and knows IP radio inside out. With Pandora boasting over 60 million users, well, there's little arguing that Kennedy has not helped create a product which is massively popular. While Pandora struggles to make a profit, there is no denying its popularity.
And what does Sirius XM need? Innovation. The core business is strong, and Sirius XM rakes in cash hand over fist. Satellite delivery of radio is and will be the winner in the car for the foreseeable future, but there will come a point in time that mobile IP is fleshed out enough that IP delivered radio and the customization it brings will present a problem for Sirius XM.
That means Sirius XM needs to push gradually into the IP space, and they need to do it right. Why not pick up the guy that already did it right, and give him the reins as the company pushes into IP? Sirius XM bringing on Joe Kennedy certainly makes a lot more sense to me than Pandora bringing on Karmazin.
But I am not so sure I see Kennedy coming in as Sirius XM CEO if he was to actually join the company. Sirius XM has a very successful core business and the CEO of Sirius XM must understand this business in and out. I think Meyer is well suited to this position already. So in the case of Kennedy making the move to Sirius XM, I could see him being in charge of building out the IP delivered side of the company and pushing Sirius XM down a more innovative path. The guy knows IP radio, and that's one of the things most investors agree that Sirius XM needs to focus on.
Opinions will abound on this issue, and the discussion is likely to get more heated as time goes on. Does Karmazin go to Pandora? Does Kennedy go to Sirius XM? Or are these ideas just the product of too much daydreaming by investors of both companies?
Only time will tell.
Additional disclosure: I am long SIRI Jan 2014 $2 call options.