The battle for music streaming superiority rages on as SiriusXM announced today that it would acquire Pandora for roughly $3.5 billlion. According to some sources, Pandora has been losing 850,000 users per month over the past nine months. Perhaps this merger with SiriusXM will bring it back to its glory days.
Let’s use this opportunity to discuss stocks for people interested in learning. When a company is being bought, it is purchased at a premium (most of the time). In these cases, the acquired company’s stock usually rises (temporarily) and the acquiring company’s stock typically falls (temporarily). If you would like to know more, there’s actually an Investopedia article about it.
If you somehow get the price being paid for the company, here’s what you can do to find out if a premium is being paid:
- Go to the company’s Yahoo Finance profile page and look up the company’s number of outstanding shares.
- Multiply the outstanding shares by stock price.
- If the total is less than the price being paid for the company, then the acquiring company paid a premium.
In Pandora’s case, the stock price was about $9 and the outstanding shares is 266.32M. If you multiply the numbers, you get about $2.1 billion. This means there was a $1.4 billion premium paid for the company. If you look at the day chart for Pandora, you’ll notice it popped to almost $10 for a short time and worked its way back to about $9 by the end of the day.
Side note: based on the premium, you’ll get 1.44 SiriusXM shares for every Pandora share you own.
As you can see, unless you have insider information, it would be pretty hard to profit off these moves. Additionally, this doesn’t always happen whenever there is an acquisition, but like I always say, playing stocks is essentially calculated risk-taking/gambling.
* Disclaimer: I’m am not a financial analyst and this is not financial advice. Gamble with stocks at your own risk.