In connection with the investment, Richard Sarnoff, KKR’s Head of Media & Communications Private Equity investing in the Americas, will join Pandora’s Board of Directors.
The news comes as Pandora posts revenues of $316M (+6.3% YoY) for Q1 2017, with a quarterly net loss of $132.3m – up from the $115.1m loss posted in the same period of 2016.
“We are happy to be partnering with KKR on this investment,” said Naveen Chopra, chief financial officer at Pandora. “A strong balance sheet gives us the ability to accelerate growth investments when appropriate and to compete aggressively in a rapidly changing, complex market.”
Under the terms of the investment, KKR will purchase an aggregate of $150 million in a new designated Series A convertible preferred stock of Pandora.
Pandora will pay dividends to the holders of the preferred stock quarterly at an annualized rate of 7.5% if paid in cash or 8% if paid in kind.
“We are excited to support the long-term growth of Pandora with this investment.”
Richard Sarnoff, KKR
The Series A preferred stock is convertible into common stock, cash or a combination at a conversion price of $13.50 per share.
The offering may be upsized to a total of $250 million should Pandora decide to issue additional shares.
“We are excited to support the long-term growth of Pandora with this investment,” said Sarnoff.
“A true pioneer in digital music, we believe that Pandora is uniquely positioned over the long term given the sheer size of its user base, the quality of its new subscription services and the fact that it has created one of the few scaled streaming media businesses in the US.
“The launch of Pandora Premium is yet another example of innovation at a company that created the modern-day music recommendation engine. And we believe that the next few years should be transformational for the company.”
The investment is subject to customary closing conditions, including regulatory approval, and it is not expected to close earlier than June 8, 2017.
The investment is being made by KKR through its sponsored investment funds.
KKR manages investments across multiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds.
The KKR news comes as management changes are announced at Pandora.
James M. P. Feuille and Peter Gotcher will resign from the Board of Directors, and the Board is forming an independent committee, to be chaired by Timothy Leiweke, an independent director, to identify and appoint new directors who will provide additional expertise and leadership as the Company moves forward.
In addition, at the upcoming 2017 annual meeting of stockholders, the Board will recommend a resolution to declassify the Board and provide for the annual election of directors in the future.
“Having secured a significant financial commitment from KKR to strengthen the Company’s balance sheet, we have positioned the Company to evaluate any potential strategic alternatives, including a sale, in the 30 days before the financing is set to close,” said Mr. Feuille.
“I believe the steps we are taking today offer Pandora the ability to consider all opportunities and to set a course for the future. I thank my colleagues and our stockholders for their support, and look forward to following Pandora, whose future I truly believe is exciting.”
In addition, Centerview Partners LLC and Morgan Stanley will continue to advise the Board of Directors regarding its ongoing review of strategic alternatives.
Mr. Leiweke added, “The governance measures we have undertaken today have the support of our major stockholders. The Board is squarely focused on maximizing stockholder value as we move ahead.”Music Business Worldwide