How Pandora let $1.5B slip away

After nearly a year of on-again, off-again talks to sell itself, Pandora, the struggling radio streamer, said Friday it had agreed to accept a $480 million investment from SiriusXM.

Liberty Media-controlled SiriusXM would get a nearly 20 percent stake in Pandora, a 6 percent dividend on its Series A convertible preferred shares and three board seats — including the chairman’s seat. For the money-losing, cash-burning Pandora, the cash would certainly come in handy.

Investors, while disappointed Pandora was not sold — its shares are down 35 percent this year — appeared buoyed over the influx of cash. Shares gained 1.2 percent, to $8.52, on Friday.

Keith Meister, the Carl Icahn-trained boss at activist investor Corvex Management, suggested Pandora was getting a great deal.

Keith MeisterReuters

Meister, whose firm owns a 10 percent stake, jumped on CNBC on Friday and proclaimed: “Big picture, it’s a great day for shareholders. I think it’s the beginning of Pandora 2.0.”

In the moment, Meister seemed to be making the right call.

But a look at how the activist investor, Pandora executives and the radio streamer’s board played their hand over the last 11 months reveals a bungled chance to sell the company at $15 a share.

All three misplayed Pandora’s hand — and $1.5 billion in market cap melted away as the company continued to lose money and lose leverage against what truly was its only logical merger partner, sources said.

Last July, Liberty Media was in sales talks with Pandora. The radio streamer’s shares at the time were trading in a range of about $12.50 to $13.50.

Liberty was ready to pay $15 a share, sources said.

Tim WestergrenGetty Images

But Tim Westergren, who had recently returned to the CEO post and was firmly against a sale, persuaded the board to reject Liberty’s offer. He and the board thought the company was worth $20 a share.

That Westergren had an uber-friendly board to convince can be traced to missteps by Meister, sources said.

Two months earlier, in May 2016, after Meister announced he had acquired a leading 9.9 percent stake in Pandora, the activist said he intended to mount a proxy fight to nominate three directors to the San Francisco company’s board.

At the time, Brian McAndrews was Pandora’s chief executive. McAndrews was much more open to a sale — and in fact quickly agreed with Meister’s ideas on the future of his company.

Instead of staying in the fight and seeing his cause through, Meister ended any talk of a proxy fight and withdrew his three nominees.

But Westergren had other ideas.

After Meister withdrew from a proxy fight, Pandora replaced McAndrews with Westergren. Meister, with no friends on the board, was forced to stand by helplessly — voicing frustrations, to be sure — with no power to change the board’s mind.

Meanwhile, Liberty Media boss Greg Maffei — who also serves at SiriusXM’s chairman — continued to circle Pandora, eyeing its 80 million users and the ad technology that supports its service.

Greg MaffeiGetty Images

But Maffei was playing it cool. Months earlier he told attendees at a tech conference, “We have looked at the business models on a bunch of the streaming companies and found it very hard to see them [as] attractive.”

He would continue to circle back and again engage in preliminary talks with Pandora — and each time it seemed his price would drop.

Earlier this year, there were reports that Maffei would be interested in Pandora — but at no more than $10 a share.

In early May, Pandora agreed to accept a $150 million investment from KKR & Co. The KKR deal was also a convertible offering with a strike price of $13.50 a share. KKR agreed not to close the deal for 30 days as Pandora continued to shop itself.

Maffei, still hanging around the rim, started talks again with Pandora in May. This time his offer was around $11.50 a share. But by the time the two sides reached a deal on Friday it was at $8 a share, sources said.

With the 6 percent coupon, after five years of dividends SiriusXM is really paying closer to $8 a share, sources close to the deal said. For those who had followed the SiriusXM-Pandora romance over 11 months, the deal was a clear win for Maffei — and a clear bungle for Pandora, Westergren and Meister.

SiriusXM’s convertible finance deal comes with a strike price of $10.50 — more than 20 percent lower than KKR’s strike price, just 30 days after the private equity firm negotiated its deal.

“Pandora had no leverage,” one shareholder told The Post, “Maffei played his hand perfectly.” Pandora declined to comment for this story.

Stuck with a stock price at $8.52, a second disgruntled shareholder admitted, “Pandora is a great product and a valuable asset that has been perpetually mismanaged. The company made a series of bad capital allocations that has destroyed value.”

Maffei, not surprisingly, was more upbeat about Pandora after the deal was signed.

“Liberty Media has long recognized the strength of the Pandora brand and the opportunities in the ad-supported digital radio market,” he said in a statement.

Indeed, Pandora is in a fast-growing sector. The streaming business saw paid subscriptions jump to 112 million last year and streaming revenue grow 60 percent year-over-year.

To some inside the media business, the play for Pandora by Maffei, the former Microsoft chief financial officer, is similar to his playbook from 2013 when Liberty bought a small investment in Sirius.

Liberty then got rid of SiriusXM boss Mel Karmazin and gained control of the firm. It currently has a 61 percent stake.

The deal might be even better for SiriusXM once you get down to the fine print. The satellite radio network is putting up only $172.5 million initially. The balance isn’t due until the fourth quarter.

Sirius has agreed not to acquire more than 31.5 percent of the equity without board approval.

Next week, Westergren will be hosting meetings with current and potential advertisers at the Cannes Lions festival. The only question now is how long he will continue in that role.

He has made a number of high-profile missteps.

For example, Pandora bought ticket seller Ticketfly for $335 million in 2015 under McAndrews. On Friday, it announced it was selling it to Eventbrite for $200 million.

It will pay KKR a $22 million break-up fee to get out of its never consummated financing deal.

The future looks more positive for Pandora’s chief financial officer, Naveen Chopra, who is already well known to Sirius XM. Chopra was interim CEO of TiVo, where Sirius CEO Jim Meyer was board chairman.

Meyer sent a note to staff on Friday praising the deal but stating: “To be clear, this is a smart financial decision — it is not a merger or a business combination.”

Filed under 6/10/17