SiriusXM came to the aid of Pandora with an investment of almost half a billion dollars, though it’s not buying the streamer outright. Pandora meanwhile is also shedding its ticket business to raise more cash.
The “strategic” investment by SiriusXM is $480 million, the organizations announced June 9; Pandora said it is offloading Ticketfly to Eventbrite for a package valued at another $200 million in an effort to focus on “core priorities.”
These moves follow a strategic review process, results of which the streamer disclosed in May.
According to a release, “The capital provided through the SiriusXM investment will allow Pandora to make targeted investments and capitalize on opportunities to build on its position in the streaming radio business.” For SiriusXM’s part, CEO Jim Meyer said the satcaster is making this move because it represents “the ad-supported digital radio business, a space where SiriusXM does not play today.”
An aspect of the agreement signals Pandora’s relative weakness — its board will no longer be helmed by an Pandora insider.
Three individuals designated by SiriusXM will be named to the board of directors, which will be expanded to nine people. One of SiriusXM’s designees will serve as chairman, the other two will serve as select board committee representatives.
A SiriusXM subsidiary purchased $172.5 million of Series A preferred stock upon execution of the agreement and has agreed to purchase the balance of the stock at a second closing, subject to customary closing conditions; it’s expected to close by Q4. That’s the equivalent of 19% of Pandora’s outstanding common stock and a 16% stake on an as-converted basis, according to the announcement. The agreement may be terminated by either party if closing has not occurred by Feb. 1, 2018.
Among other restrictions, SiriusXM will not be allowed to acquire additional securities of Pandora for 18 months. (That should quell rumors of an outright takeover for a while.)
After that period and for as long as a director designated by it is serving on the board of directors, SiriusXM has agreed not to acquire more than 31.5% of Pandora’s equity securities without the approval of Pandora’s board of directors. (That should be an easier hurdle to jump, given the new board structure.)
Pandora had acquired Ticketfly less than two years ago, October 2015, a move that expanded its portfolio into live events. That transaction was valued at $450 million — more than twice what Eventbrite will now pay through a combination of $150 million cash and a $50 million note payable to Pandora.
However, Pandora isn’t completely getting out of the ticketing game. According to the release, Pandora plans to partner with Eventbrite in a “commercial agreement that allows Pandora to broaden the scale of its ticketing opportunities.” Pandora says this move “leveraging audience scale and targeting while minimizing the operational commitment” — and allows them to focus on the core business of personalized streaming, one assumes.
The Ticketfly transaction is expected to close in Q3 2017.
Additionally, Pandora agreed with an affiliate of Kohlberg Kravis & Roberts to terminate an investment agreement announced on May 8 and to pay a termination fee of $22.5 million.
Despite these shakeups, the tone of the announcements was upbeat. The release says the company believes it is “positioned to create a hybrid advertising/subscription model that can achieve success where others in the subscription music category may have struggled.”
“Pandora is now poised to advance to the next stage of the company’s lifecycle,” Pandora Director Tim Leiweke said in the announcement.
Allen & Company LLC and BofA Merrill Lynch serve as financial advisors to SiriusXM and Jones Day and Simpson Thacher & Bartlett LLP are serving as its legal counsel. Centerview Partners LLC and Morgan Stanley & Co. LLC are serving as financial advisors to Pandora and Sidley Austin LLP and Wachtell, Lipton, Rosen & Katz are acting as legal counsel.
Additional information about these may be found in the Form 8-Ks Pandora will file with the U.S. Securities and Exchange Commission.