Los Angeles - Pandora Media is 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 $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.
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“Their balance sheet was deteriorating and they were at
risk,” said Rich Greenfield, an analyst at BTIG LLC. 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, Chief Financial Officer
Naveen Chopra said on a call with investors.
The company’s cash and short-term investments have dwindled
to a little over $200 million from $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
Greenfield. The company declined to comment.
Under the agreement, KKR will purchase $150 million in a
newly designated Series A convertible preferred stock. The stock will yield at
least 7.5 percent and is convertible into common stock at $13.50 a share.
Pandora also has the option to increase the investment to a total of $250
million.
Investors applauded the move, sending the stock up as much
as 3.4 percent to $10.75 in early trading in New York Tuesday. The company, which went
public at $16 a share in June 2011, traded as high as $40.44 in 2014.
Corvex, which holds almost 10 percent 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 $132.3 million while revenue grew 6.3 percent to $316 million, shy
of analysts’ estimates. The loss of 24 cents excluding some items was smaller
than the 34-cent average of analysts’ estimates.
This quarter, the company forecasts a loss of $50 million to
$65 million before interest, taxes, depreciation and amortization. Analysts
were predicting a loss of $15.7 million on that basis. Revenue will be $375
million at most, the company, said, missing analysts’ forecasts of $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. Counterview Partners LLC and
Morgan Stanley will continue to advise the board on strategic alternatives.