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Former Pandora investors sue over Sirius acquisition

By | Published on Wednesday 21 August 2019


Some former investors in Pandora have filed a lawsuit declaring that Sirius XM’s acquisition of the personalised radio service earlier this year was “invalid and void” from the off. The legal filing claims that the deal was “prohibited” by earlier agreements and laws in the US state of Delaware, where the company was incorporated.

Satellite radio firm Sirius first bought into the Pandora business back in 2017. Then, last September, it announced its intention to buy the streaming music set-up outright, basically merging it with the Sirius radio network to create “the world’s largest audio entertainment company”. That deal was then approved by Pandora’s other shareholders in January of this year.

However, questions were asked about the acquisition almost as soon as it was completed, with some claiming that the process via which Sirius took over the Pandora company had been “flawed”. Critics alleged that Sirius had exploited the places it had secured on the Pandora board via the 2017 deal in order to “improperly push the company towards unfavourable deal terms” to the detriment of other shareholders.

According to Law360, this newly filed lawsuit cites a bit of Delaware corporation law which, in the absence of other agreements, applies whenever someone buys more than 15% of a company. That rule says that the share purchaser is barred from “mounting an exchange or tender offer” for the business in which they just have invested for three years after their initial share purchase.

Pandora, though, waived that statutory restriction in its 2017 deal with Sirius. Although it acquired just over 15% of Pandora stock at that time, the satellite radio firm had already been mooted as a company that might ultimately want to completely acquire the personalised radio platform. However, the same deal nevertheless prohibited a takeover of Pandora by Sirius before 9 Dec 2018.

Sirius’s acquisition of Pandora was completed after that date, of course, but the lawsuit says that earlier work to prepare for that takeover breached the terms of the 2017 agreement. These – and other alleged contract violations – rendered that agreement void, the argument goes, meaning the statutory three-year limitation on any takeover bid should have kicked back in.

Elsewhere the lawsuit accuses those Sirius execs who got seats on the Pandora board in 2017 of putting inappropriate pressure on the firm’s other directors to approve plans for a takeover. It also criticises the appointment by the Pandora board of a financial advisor with close links to John Malone of Liberty Media, which has a controlling stake in Sirius.

All of this, the legal filing claims, deprived investors of protections against “a creeping acquisition by a large bloc holder”, which impacted on the value of Pandora stock at the time of Sirius’s acquisition.

“The merger was invalid and void [from the start] because it was prohibited”, the lawsuit says, citing the 2017 agreement and Delaware law. “Therefore, the taking of the Pandora stock of plaintiff and the class through the merger was wrongful and the corporate parties to the merger have exercised wrongful dominion”.

Led by former shareholder Richard J Tornetta, the lawsuit – which wants class action status – seeks damages for former Pandora investors who, it alleges, were short-changed by this year’s Sirius deal.