Why Is A Fund Seeking Pandora/Sirius XM Merger Papers?

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The Arbitrage Fund, launched in 2000, seeks capital growth through an investment approach focused on the strategy of, well, merger arbitrage.


This typically sees the purchase and sale — at the same time — of the stocks of two merging companies to create what a fund may consider to be “riskless” profits.

With that tact inscribed into its mission statement, the Arbitrage Fund has had its eyes on Pandora Media and its freshly closed merger with Sirius XM Holdings Inc. To them, something smells funny — and Pandora is trying in court to squelch the fund.

To some, The Arbitrage Fund is part of a group of financial institutions created to exploit market inefficiencies before or after a merger or acquisition.

With Pandora just having merged with Sirius XM in a deal valued at $3.5 billion, the fund closely followed the actions that transpired as the transaction progressed to its conclusion.

For The Arbitrage Fund, one question sticks out — did Pandora officers seek competing bids?

Further, did Sirius XM Holdings influence directors at Pandora into getting a transaction finalized?

These questions were the crux of a request by The Arbitrage Fund with the Delaware Chancery Court to obtain documents related to the merger. It wants an answer, and the court’s help in delivering one.

Pandora says no, and in a court filing made February 3 requested that the court deny the fund’s request.

According to Law360, which first reported the story, the fund wants to sniff out claims that Pandora pursued a “flawed” merger process with an offer sheet that was “unfavorable” to its investors. Pandora calls the Arbitrage request, made January 31, “baseless.”

Section 220 of Delaware Corporation Law states that the court, at the request of investors, can order a company to provide access to its financial statements should they provide a significant purpose, such as looking into a questionable act.

Arbitrage’s filing, Law360 says, suggests Pandora’s board “made negligible efforts to seek out competing bids during the 30-day ‘go-shop’ period” and that Sirius “effectively assumed control over the board” and “embedded a conflicted financial advisor within the deal negotiation process and improperly pushed the company towards unfavorable deal terms.”

The filing came before the February 1 closing of the Sirius XM/Pandora merger. Pandora stockholders received 1.44 newly issued Sirius shares for each of their Pandora shares. Sirius previously acquired a 15% ownership stake in Pandora.

As of 2:42pm Eastern on Tuesday (2/5), Sirius shares are priced at $6.14, up 10 cents from Monday’s close.

Before Sept. 24, Sirius shares were above $6.30 a share and had peaked at $7.58 on June 11, 2018. Arbitrage played this up in its claim, saying that Sirius’ share price decline resulted in less deal value for Pandora investors than previously anticipated, Law360 notes.

But, a RBR+TVBR analysis shows SIRI was priced one year ago at $5.82, and on a five-year trend is clearly on an uptrend.

Yet, Arbitrage hypothesizes that the Sirius XM-Pandora merger was “driven by the conflicting interests of the company’s directors and/or officers, as well as the conflicted financial advisor Pandora engaged to evaluate a potential transaction.”


The case is The Arbitrage Fund v. Pandora Media Inc., case number 2019-0074, in the Court of Chancery of the State of Delaware.

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