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Pandora steps up hunt for buyer, gets US$150m from KKR

Tuesday, May 9, 2017 - 07:47

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Pandora Media Inc, struggling with widening losses and a tepid outlook for its online music business, is shaking up its board and stepping up efforts to find a possible buyer.

[LOS ANGELES] Pandora Media Inc, struggling with widening losses and a tepid outlook for its online music business, is shaking up its board and stepping up efforts to find a possible buyer.

The Oakland, California-based company said in a statement Monday it received a US$150 million infusion from KKR & Co, the private-equity firm. Two directors will leave and Pandora will create a new independent board committee that plans to seek new members. Richard Sarnoff, who oversees KKR's media and communications holdings in the Americas, will join the board as well.

The fast growth of Spotify and Apple Music, along with the billions of dollars Amazon and Google are investing in music, have pressured Pandora to expand beyond its roots as an internet radio company and become a streaming service seeking paying subscribers. It also has gone into ticketing and artist services. Investors such as the hedge fund Corvex Management LP are questioning that strategy and urging a possible sale because of losses and a tumbling stock price.

"Their balance sheet was deteriorating and they were at risk," said Rich Greenfield, an analyst with BTIG LLC.

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Pandora has said it can add customers because the market for paid streaming is still in its infancy. Yet more than 100 million people around the world are already paying for a music service of some kind, including more than 20 million people in Pandora's home market. The company held out the possibility Monday it could find a buyer in the 30 days before the KKR investment closes.

Pandora introduced its paid service later than expected and won't generate significant revenue from subscribers until the second half of the year, CFO Naveen Chopra said on a call with investors.

The company's cash and short-term investments have dwindled to a little over US$200 million from US$382 million two years ago because of acquisitions and ongoing losses, and Pandora faced looming payments to major record labels that could have triggered a crisis, according to Mr Greenfield. The company declined to comment.

Under the agreement, KKR will purchase US$150 million in a newly designated Series A convertible preferred stock. The stock will yield at least 7.5 per cent and is convertible into common stock at US$13.50 a share. Pandora also has the option to increase the investment to a total of US$250 million.

The shares rose 3.6 per cent to US$10.77 in extended trading after the announcement. The company, which went public at US$16 a share in June 2011, traded as high as US$40.44 in 2014.

Corvex, which holds almost 10 per cent of the stock, has urged Pandora to improve its performance or sell. Sirius XM Holdings Inc, the satellite-radio provider controlled by billionaire John Malone, has sometimes expressed interest in doing a deal for Pandora, though executives have downplayed their desire for a merger on other occasions.

Pandora said after markets closed its first-quarter loss widened to US$132.3 million while revenue grew 6.3 per cent to US$316 million, shy of analysts' estimates. The loss of 24 US cents excluding some items was smaller than the 34-US cent average of analysts' estimates.

This quarter, the company forecasts a loss of US$50 million to US$65 million before interest, taxes, depreciation and amortisation. Analysts were predicting a loss of US$15.7 million on that basis. Revenue will be US$375 million at most, the company, said, missing analysts' forecasts of US$390 million.

As part of the board changes, James M P Feuille and Peter Gotcher will resign. Timothy Leiweke, an independent director, will form a new committee to identify and appoint new directors. Centerview Partners LLC and Morgan Stanley will continue to advise the board on strategic alternatives.

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