Sirius XM Holdings Inc. is investing $480 million in cash in Pandora Media Inc.
A Sirius subsidiary will purchase a total of $480 million in newly issued series A convertible preferred stock of Pandora. Sirius purchased $172.5 million of series A preferred stock upon execution of the agreement and has agreed to purchase the balance of the series A preferred stock at a second closing.
The series A preferred stock will represent a stake of 19% of Pandora's currently outstanding common stock and a 16% stake on an as-converted basis, the company said June 9.
The series A preferred stock is convertible into common stock at a purchase price of $10.50 per share. The conversion price of the series A preferred stock is about a 14.2% premium to Pandora's volume weighted average price for the 20-day period preceding June 9. The series A preferred stock will bear a 6% cumulative dividend, payable in cash, accretion of the series A preferred stock or a combination.
Pandora plans to use the capital provided by Sirius to make targeted investments and bolster its position in the streaming radio business.
Following the closing of the deal, three individuals designated by Sirius will be named to the Pandora board. One of these individuals will serve as chairman and Sirius designated directors will serve as select board committee representatives. With the additions, the Pandora board will consist of nine directors.
As a result of the Sirius deal, Pandora agreed with an affiliate of Kohlberg Kravis & Roberts to terminate their recent investment agreement and to pay KKR & Co. LP a termination fee of $22.5 million.
Pandora is required to redeem the series A preferred stock on the fifth anniversary of the closing for an amount equal to its liquidation preference plus all accrued and unpaid dividends. Pandora can also redeem the series A preferred stock at any time after the third anniversary of the closing if the daily volume weighted average price of Pandora's common stock is greater than or equal to 175% of the then applicable conversion price for a period of at least 20 days during a 30-day trading window before the notice of redemption.
Sirius will be subject to certain standstill restrictions, including that it will be restricted from acquiring additional securities of Pandora for 18 months. After that period and for so long as a director designated by it is serving on the board, Sirius has agreed not to acquire more than 31.5% of Pandora's equity securities without the approval of Pandora's board.
The second closing contemplated by the agreement is subject to customary closing conditions, including antitrust approval, and is expected to close by the fourth quarter. The agreement may be terminated by either party if closing has not occurred by Feb. 1, 2018.
Allen & Co. LLC and Bank of America Merrill Lynch are serving as financial advisers to Sirius and Jones Day and Simpson Thacher & Bartlett LLP are serving as its legal counsel. Centerview Partners LLC and Morgan Stanley & Co. LLC are serving as financial advisers to Pandora and Sidley Austin LLP and Wachtell Lipton Rosen & Katz are acting as legal counsel.
Pandora also struck a deal to sell its Ticketfly business for $200 million to Eventbrite. The deal will be funded through a combination of $150 million in cash and a $50 million note payable to Pandora. In connection with the closing, Pandora and Eventbrite expect to ink a commercial deal that allows Pandora to substantially broaden the scale of its ticketing opportunities. The Ticketfly transaction is expected to close in the third quarter.
"Pandora is now poised to advance to the next stage of the company's life cycle," Pandora director Tim Leiweke said in a June 9 news release. "We are pleased that the conclusion of our strategic review resulted in a major investment by a world class company like SiriusXM, and with the sale of Ticketfly, we will now redouble our focus on execution supported by a strong balance sheet."