Weighing the Takeover Rumors About Pandora

| About: Pandora Media (P)

It has only been publicly traded for a couple of weeks and already Internet radio provider Pandora (NYSE:P) is the subject of a takeover rumor. The latest rumor was supplied by Joseph Clayton, former CEO of Sirius Satellite Radio (NASDAQ:SIRI) and currently at the helm of Dish Network (NASDAQ:DISH).

It was reported Friday that Joe Clayton made a comment concerning Sirius XM, Pandora, and Hulu as companies DISH might be interested in. Pandora traded up sharply on the news while rumor did not really move the needle for Sirius XM. Long time investors in satellite radio should be well familiar with the style of Joe Clayton, and likely understand that he is more likely simply talking things up than really planning such a move. If Clayton was really interested in any of these companies would he be so quick to tell the world?

Sirius XM has just over 39% of the company tied up in preferred shares owned by Liberty Capital (NASDAQ:LCAPA) that converts to 2.586 billion common shares at the discretion of Liberty. That realistically takes Sirius XM out of the sights of Dish unless it was going to buy up Liberty's preferred stake.

Pandora, also mentioned as a candidate, may be too expensive for Dish to make a move. If Dish really wanted in, it could have bought in prior to the company going public and already made a killing. Pandora has not yet made a profit and it would take a billion dollars to gain a controlling interest. Profits on such an investment could be a year away.

The combination of Dish and Pandora could be pretty compelling though, as it would then become the natural music choice of Dish in favor over the Sirius XM streams Dish currently offers. It would have the potential to instantly make Pandora a satellite radio company via the Dish satellites, setting up a whole new royalty structure and giving the Internet radio provider instant exposure to the nearly 15 million subscribers Dish Network has.

Two years ago Dish's Charles Ergen made a move to grab Sirius XM as it was teetering on bankruptcy. Ergen bought up a lot of the Sirius XM debt, and was rumored to have made an offer equating to about $1.50 per share. Ultimately Liberty Media's John Malone swooped in and loaned Sirius XM money to save it from bankruptcy. In exchange, Malone got preferred shares that at the time equated to 40% of the company.

Thus, if Dish is interested in the music space Pandora could be an interesting albeit expensive choice.

The talk of Hulu seems to be out of left field. Hulu, founded in 2007, is owned by NBC Universal, News Corporation (NASDAQ:NWS), and Disney (NYSE:DIS). Even though Hulu is operated independently, negotiating with these three media giants would be a feat in and of itself.

In the end I think that Pandora is the most likely candidate, but even at that, Clayton would not show his cards if he were truly interested. Then again, when he was with Sirius XM he did say that he was getting NASCAR no matter what- and did it.

If you are invested in Pandora, appreciate the rumor supplied by Joe Clayton, but do not stick to it as a reason to be invested in the Internet radio provider.

Disclosure: I am long SIRI. I have no position in P, DISH, LCAPA

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