Sirius Was Likely Impressed With Pandora's Near-Term Execution, Analyst Says After Acquisition Announcement

Satellite radio provider Sirius XM Holdings Inc SIRI invested $480 million in Pandora Media Inc P last year. Sirius was was likely "impressed" with Pandora's performance, and Monday's announcement of a complete acquisition "makes sense," according to Evercore ISI's Anthony DiClemente.

The Analyst

Evercore ISI's Anthony DiClemente discussed Monday's merger announcement on CNBC's "Squawk Box" segment.

The Thesis

Sirius XM's 2017 investment in Pandora gave the company a firsthand view of Pandora's inner workings, and the company was likely impressed with the near-term execution it saw, DiClemente told CNBC.

Sirius felt it would be wise to acquire Pandora and gain control of perhaps the most strategically important asset in the space: the aggregation of users to combat growing competition from larger tech giants at a time when scale matters most, the Evercore analyst said. 

Investors shouldn't rule out a larger competing bid for Pandora to gain its assets as part of the required "go shop period," DiClemente said. Yet Pandora is unprofitable, and a company like Apple Inc. AAPL or Spotify Technology SA SPOT would take too long to get to know Pandora in the way Sirius does as a major shareholder, he said. 

Sirius XM's stock sell-off Monday morning is justified based on the dilutive nature of the deal, DiClemente said, adding that he believes the market isn't fully understanding the benefits of the deal.

"Once the market gets a better feel for what the strategy is at the Sirius XM level, then we will start to see the stock normalize." 

Price Action

Pandora shares were trading down 0.11 percent at $9.08 at the time of publication Monday, while Sirius shares were down 8.74 percent at $6.37. 

Related Links:

Barrington Explains Why A Neutral Stance On Sirius XM Was Wrong

Can Pandora's New Management Team Change Analysts' Tune?

Photo courtesy of Pandora.