Reports Thursday indicated that an offer of $15 per share made by Liberty Media (LMCA) has been turned down by the Board of Directors of Pandora (NYSE:P). It is being reported that the offer was floated a couple of months ago and the Pandora Board declined the offer because it sees its value at something more along the lines of $20 per share.
The concept of Liberty floating ideas out as a trial balloon is not new. The company oft casts a few lines into the water to test reaction. If it gets a bite, then it reels it in. If not, it hopes to get enough information to see the attitude of the potential target as well as the street.
Liberty Media already has a stake of over 64% in satellite radio provider Sirius XM (NASDAQ:SIRI). The Liberty stake in Sirius XM has been increasing without Liberty spending a dime on the heels of a massive share buyback program set in motion by Sirius XM. Liberty Media spun off its Sirius XM stake into three tracking stocks that trade under Liberty Sirius XM (LSXMA, LSXMB, and LSXMC).
The issue of exactly what Liberty intends to do with its stake in Sirius XM has been garnering more attention of late. Sirius XM's current share buyback program has about two more quarters worth of money committed to it, if the company were to buy at its normal $500 million per quarter pace.
One concept that people consider a real possibility is the idea of Liberty making a move on Sirius XM. Under one theoretical path, Liberty could acquire Pandora and merge that entity into Sirius XM in a tax friendly transaction that would be an all-stock deal.
Pandora has been losing money for years, but does have a massive subscriber pool for the free version of its service. In the last year, the company has been working extensively on a localized advertising model to capitalize on that pool. Whether synergies would exist between Sirius XM's paying base and Pandora's free base is a hot discussion. In concept, it would be possible for Sirius XM to emulate what Pandora does for much less than the $3.4 to $4.5 billion that it might take to acquire Pandora. The big question is whether a free ad supported version of a Sirius XM service could attract the loyal followers of Pandora. Essentially, a critical question is where the value is and how valuable the Pandora user base actually is.
For those that love a conspiracy theory, the idea of Liberty buying Pandora may have been a trial balloon to gauge the reaction of Sirius XM investors. Once Liberty passes 80% ownership in Sirius XM, their ability to close a take-over deal gets much easier.
Another theory is that Liberty could have seen the pressure being placed on the Pandora Board by activist investor Keith Meister of Corvex (with a substantial stake of about 10%) to make a move that could even include a sale of the company. Liberty could be testing the waters to see exactly what a giant like Pandora can garner on the open market and flush out any other potential bidders. This could help Liberty in multiple strategies.
The bottom line is that Sirius XM's and Pandora's investors should pay close attention to Liberty Media, because it seems the company is gearing up to make a strategic move of some sort in the months ahead. Personally, I invest in Liberty Media because the management of the company is about as savvy as it comes when it comes to creating value. Stay Tuned!
Disclosure: I am/we are long LMCA, LMCK, LSXMA, LSXMC, SIRI.
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