SiriusXM And Pandora Reportedly In Talks; SunTrust Considers Potential Deal

Pandora Media IncP

The New York Post reported after Wednesday's market close that Sirius XM Holdings Inc. SIRI is in talks to acquire Pandora. A CNBC report on Thursday added to the speculation and reported that talks between Sirius XM and Pandora have been on-and-off for months.

SunTrust: Pandora Is A 'Motivated' Seller, But Don't Expect A Hefty Premium

Matthew Thornton of SunTrust Robinson Humphrey argued in a research report that the streaming music provider is a "motivated seller," but that doesn't mean it can negotiate from a position of strength. Related Links: Has The Pandora Thesis Changed In Light Of KKR Investment? Statistics Show Music Streaming Is Now Too Big To Fail...For The Music Industry

Investors shouldn't necessarily be surprised by the M&A chatter. Pandora closed a $150 million investment from the private equity firm KKR in early May, which led many to believe that a sale of itself is near.

The analyst thinks Pandora could be worth at least $9–$12 per share in an M&A scenario. As such, any finalized deal implies a loss of around 4 percent and upside of 24 percent with a 10 percent premium at the midpoint.

Moreover, Sirius chairman Greg Maffei was quoted by the New York Post as saying in the past that Pandora's business is only worth $10 per share, although he may have also offered $15 per share to acquire Pandora last July.

Aside from Sirius, the analyst thinks Tencent, Spotify, and Alphabet Inc GOOG GOOGL as other potential suitors.

Bottom line, Thorton maintains a Buy rating on "elevated prospects for M&A" but with a price target lowered from $16 to $10.50 to reflect a weighted average of a sale and no-sale valuation models.