Activist investor Corvex pushes for sale of Pandora
Activist investor and hedge fund Corvex Management is urging Pandora to put the music streaming service up for sale.
In a letter to Pandora’s board, Corvex Managing Partner Keith Meister called the music service a “great product” but noted concerns about its underperforming stock, its spending on Ticketfly and founder and CEO Tim Westergren’s corporate strategy.
Corvex owns a 9.9% stake in Pandora, making it the largest shareholder, Meister said in the letter filed with the Securities and Exchange Commission.
Pandora shares surged 6% Tuesday to close at $10.59. Pan- dora shares are down 20% so far this year but have rallied about 11% since Westergren, who had been chief strategy officer, replaced Brian McAndrews as CEO in March.
“We have become increasingly concerned that the company may be pursuing a costly and uncertain business plan, without a thorough evaluation of all shareholder value-maximizing alternatives,” Meister said in the letter.
“We urge the company to immediately engage an independent investment bank with a fresh perspective and without any prior history of advising the company to advise on a value maximization process — including the execution of a sales process — and to evaluate the results against other options including the risk-adjusted value of continuing to operate on a standalone basis.”
In response, Pandora issued the following statement: “Pandora is on the cusp of realizing an extraordinary vision: fundamentally changing the way listeners discover and enjoy music, and the way artists build and sustain their careers. Pandora has a profitable core business, combined with a strong balance sheet. We are confidently investing to fully capture the massive opportunity ahead of us. ... Our management team is in constant dialogue with shareholders about our business strategy and committed to delivering results and long-term value.”
The $2.3 billion market cap company, which has nearly 80 million monthly listeners on its free personalized radio service, acquired ticket service Ticketfly and competing music subscrip- tion provider Rdio in November 2015 and plans to increase paid subscription offerings this year.
The company beat Wall Street expectations during the first quarter of 2016 with revenue of $297.3 million, up 29% from the year before. Its net loss of $45.2 million was better than the $71.4 million loss expected.
SunTrust Robinson Humphrey analyst Robert Peck was not surprised by Corvex’s move, writing in an investors note Tuesday that the company is often cited as an acquisition target, with the most logical buyers being Liberty Media, which has interests in satellite radio service SiriusXM and events company LiveNation, and Spotify. Spotify leads the music streaming battle with 30 million paid subscribers and nearly 100 million total subscribers.
For a possible sale, he estimated a price per share of Pandora stock “in the mid-teens” but kept a “neutral’ rating on the stock with a target price of $9.98.