3 Potential Paths For Pandora

Pandora Media Inc P is on the market with a 30-day sale goal, and none but Sirius XM Holdings Inc. SIRI seems to notice.

Still, the potential union between Pandora and the Liberty Sirius XM Group LSXMK subsidiary, reportedly revisited Wednesday, inspired investors and sent the buyout target soaring 8.6 percent — a move Macquarie Capital considers falsely optimistic.

“With Liberty notoriously opportunistic and expected to remain financially disciplined, we believe the upside to P shares is limited and any M&A premium is unlikely to be generous,” analysts wrote in a Friday note. “Though the strategic value of Pandora is clear, we believe it’s hard to handicap choppy fundamentals, lack of confidence in streaming/Ticketfly, and Liberty’s leverage.”

Macquarie offered three predictions for Pandora’s immediate future.

The 3-Pronged Path

First, Pandora could make the Sirius sale with limited upside. Throughout the last year, the seller rejected a $15-per-share bid by Liberty, which in March appraised the stock at $10.

“If Liberty is indeed the only buyer, we believe it is unlikely to pay a generous premium,” Macquerie analysts wrote.

The second possibility is a Ticketfly sale, which could expand Pandora’s financial capacity to help sustain the core business for another two or three years. Analysts identified Live Nation Entertainment, Inc. LYV’s Ticketmaster and eBay Inc EBAY’s StubHub as potential Ticketfly buyers.

Pandora’s third option is to continue business as usual and abandon its acquisition goals. However, Macquarie noted dubious standalone prospects and predicted lessened ad and subscription numbers throughout the year.

The Sirius Status

The likelihood of an acquisition is “too tough to call.”

Although having discussed the possibility for months, the involved parties are still debating price, according to CNBC. Sirius is weighing the impact of Pandora’s first-quarter report, which revealed an allegedly concerning shift in focus from original streaming to subscription business.

The metrics raised alarm for other reasons, as well. Amid continued pressure from competitors, Pandora reported mixed performance with sales down 6.6 percent and active listeners 3.4 percent year over year, even as EPS popped 9.8 percent and revenue 6.3 percent. Wall Street reacted in disappointment but expects continued losses throughout the year.

Sirius and Pandora both declined requests for comment.

Ahead of the deal and foreseeing a 23-percent premium, Macquarie lowered its 12-month price target to $11 and downgraded the stock to Neutral. Pandora was trading at $9.42 at the time of publication.

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