For Pandora-SiriusXM, It's An Investment Not A Sale

By Liana B. Baker and Aishwarya Venugopal

(Reuters) -- Sirius XM Holdings Inc said on Friday it will invest $480 million in Pandora Media Inc, giving the satellite radio company better exposure to internet music streaming while providing financial footing to Pandora.

While Sirius XM has a strong presence in the auto market, where its channels are offered in most new cars in the United States, it has trailed Pandora and other music providers in mobile and streaming content. The relationship could give Sirius expertise in expanding its listening base outside of the car.

"We believe there are future opportunities to accelerate Pandora's growth and further increase stockholder value," Sirius XM Chief Executive Officer Jim Meyer said in a statement.

While the companies did not provide details about how they would work together, Barclays analyst Kannan Venkateshwar said Sirius XM could bundle Pandora services to its customers, similar to how Amazon (AMZN.O) sells HBO and Showtime subscriptions.

Pandora CEO Tim Westergren said the investment "infuses resources to help Pandora continue to grow and innovate."

Pandora's shares have lost more than 30 percent over the past 12 months, and the company has never turned a profit on an annual basis.

As of Friday, Pandora's market capitalization of approximately $2 billion was dwarfed by Sirius XM's $25 billion.

Sirius XM, controlled by media mogul John Malone's Liberty Media Corp will receive three board seats and appoint the chairman. Sirius is prevented from buying additional Pandora stock for 18 months and will not buy more than 31.5 percent of Pandora after that period.

The deal ends a strategic review by Pandora and should ease pressure from activist investor Corvex Management LP that goes back more than year. The deal is a "new opportunity" for Pandora that raises its value, Corvex CEO Keith Meister told CNBC on Friday.

The investment also ends an earlier agreement for KKR & Co to make an equity investment. KKR will get a $22.5 million termination fee.

Reuters first reported on Thursday that Sirius XM was looking to invest in Pandora after their merger negotiations fell apart, citing sources.

While Sirius XM agreed to a standstill agreement for 18 months, it probably does not rule out an outright acquisition of Pandora later, analysts said.

Sirius XM's owner Liberty Media, controls a media empire that includes big stakes in sports teams, cable and internet companies. It took full control of Sirius XM in 2013, five years after it first bought a stake. Liberty owns more than 60 percent of Sirius.

The latest investment by Sirius is convertible into Pandora common stock at $10.50 per share, a 23.8 percent premium to its Wednesday close.

Pandora also said on Friday it will sell its ticketing firm Ticketfly to Eventbrite for $200 million, less than half of the $450 million it paid last year.

Shares of Pandora were up 1.1 percent at $8.51 in afternoon trading, while Sirius was off 3.4 percent at $5.22 per share.

Sirius XM was advised by Allen & Co and Bank of America, while Pandora was advised by Centerview Partners and Morgan Stanley.

The NY Times reports Pandora lost $343 million last year, nearly triple what it lost in 2015. And its active monthly listener base shrank to a two-year low in this year’s first quarter, to 76.7 million.

Spotify, which lets users listen to specific tracks on demand — in addition to themed stations, like Pandora’s — has raised billions of dollars and is preparing for an unconventional listing on the New York Stock Exchange this year.

Tidal, a similar streaming service purchased by Jay Z, sold a stake to Sprint this year as it continued to hemorrhage cash.

Amazon, Apple and Google also have streaming music offerings, and all face the same fundamental challenge: Paying for music rights and marketing has proved an expensive proposition.