Major Activist Investor May Want To Increase Stake In Pandora - Why?

| About: Pandora Media (P)


Corvex has petitioned to increase its stake from 10% to 15% without further approval.

Corvex has actively said that Pandora should sell itself.

Pandora has stayed silent on the matter.

Pandora (NYSE:P) is seeing some interesting times these days. The music streaming service has had serious issues with turning a profit, and despite adding listeners, the business model has not scaled in such a way that is leading to equity appreciation. In the midst of difficult times, Corvex has taken a 9.99% stake in the company and has been vocal about the need for Pandora to explore a sale. This week Corvex seemed to up the ante by petitioning to take its stake up to 14.99%.

Corvex is run by Keith Meister, who is known for being bold, blunt and active. It may be just the type of investor Pandora needs to deliver a shift in strategy that can get this company from perpetual losses of money to a company that can explore possible shifts in strategy to drive a bigger goal.

In addition to the announced intentions of Corvex, it has been rumored that Liberty Media (NASDAQ:LMCA) floated an offer of $15 per share for Pandora that was rejected by the Board of Directors. The move by Liberty could be simply a floater seeking to see market reaction, or a serious consideration by the media giant to find synergies with its major 65% stake in Sirius XM (NASDAQ:SIRI). Liberty has paved the way for some sort of move by splitting off its Sirius XM stake into a tracing stock under the name Liberty Sirius XM (NASDAQ:LSXMA), (NASDAQ:LSXMK) and (NASDAQ:LSXMB).

What does all of this mean for Pandora? At first blush it means that there are two parties that have expressed interest. In my opinion Liberty Media is exploring big picture possibilities between Pandora, Sirius XM and Live Nation (NYSE:LYV). Meanwhile, Corvex appears to be savvy enough to realize what Liberty Media may have planned and sees the ability to score an investment win on its own by playing that potential. If one more major party hops into the mix, Pandora stock may see a decent move. I will hesitate in projecting a "bidding war" just yet, but if it happens, it will be the most exciting thing to happen to Pandora in many months.

In my opinion Corvex wants to increase its stake to take advantage of a sale, whether it be to Liberty Media or another party. Liberty wants to explore a purchase as a possible way to leverage a move that could include a mega media merger of sorts between satellite radio (Sirius XM), a streaming service (Pandora) and a concert event promoter and ticket seller (Live Nation).

Such a move would seem to make sense at first blush, but would have its issues. SiriusX M makes a ton of money by having paying subscribers. Pandora is attempting to make money by offering a free service that is advertising supported. Sirius XM has demonstrated massive success with a subscription model, while Pandora is trying to find its way with advertisers. From a Pandora perspective, a mega merger may seem like a grand idea. From a Sirius XM (and by extension Liberty Media) perspective, there should be at least a flash of concern that a free streaming service would take away from the paid side of the service if free streaming and paid satellite are combined.

Regardless of the motives of each of these parties, the reality is that Pandora is trading at about the midpoint (slightly below) between its 52-week high and its 52-week low. It has been an equity that climbed in price throughout Q2, and seems poised to have something material happen in the not to distant future. Despite moving up from $9 to $13 in the last few months, the Pandora speculation story is just getting started. This equity, in my opinion, is stable enough to offer an entry point at current levels that would allow a speculative investor to play the potential of Corvex, Liberty Media and even a yet to be named third suitor, while at the same time seeing a limited downside that could be protected with well placed stops. Stay tuned!

Disclosure: I am/we are long SIRI, LMCA, LMCK, LSXMA, LSXMK, LYV.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no position in Pandora