Pandora's $3.5b takeover by Sirius XM is unlikely to be approved by Pandora shareholders, says Wedbush

The $3.5 billion takeover of Pandora Media (NYSE:P) by Sirius XM Holdings (NASDAQ:SIRI) could fail as it is unlikely to receive the approval of Pandora shareholders, Wedbush analyst Michael Pachter wrote in a note to investors.

The announcement of the takeover of the music streaming service by the satellite radio group, which would allow Sirius to draw new listeners, on Monday sparked a sell-off in Sirius XM shares.

Under the deal’s terms, Pandora shareholders would exchange each share for 1.44 newly issued shares of Sirius XM.

Pachter argues that the sell-off in Sirius XM shares, which fell 10.3% Monday to close at $6.26 could make the deal untenable for Pandora shareholders.

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“We don’t expect the deal as currently contemplated to receive Pandora shareholder approval given the sell-off in SiriusXM shares, Pachter wrote.

Given that the exchange ratio is fixed, the slump in SiriusXM shares on Monday implies a deal price of $9.01 or so, which is a discount of 0.8% to Pandora’s closing price on Friday of $9.09, explains Pachter.

“We think that shareholders will reject the deal as inadequate, and will require the terms of the deal to be re-negotiated,” Pachter added.

The merger agreement includes a so-called ‘go-shop’ provision that allows Pandora and its board to explore other proposals.

Sirius’s proposed takeover of Pandora would allow the satellite radio group to draw listeners who prefer not to pay to listen to music. Pandora has been able to compete against radio stations by introducing advertisements on its platform.

But in recent years, the once-wildly popular music streaming service has faced difficulty competing against services like Spotify and Apple Music – which offer the chance to access music libraries in exchange for a flat fee.

Sirius shares jumped 1.6% to $6.36 while Pandora shares were flat at $9.05 in Tuesday’s pre-market session.

Story by ProactiveInvestors