Liberty Media CEO Floated $15-a-Share Offer for Pandora Media
July 21 2016 - 12:50PM
Dow Jones News
Liberty Media Corp. Chief Executive Greg Maffei, whose company
controls satellite radio giant Sirius XM, hasn't been very
complimentary of streaming music services in recent months.
"We have looked at the business models on a bunch of the
streaming companies and found it very hard to see them [as]
attractive," Mr. Maffei told investors at a March conference.
Behind the scenes, it is a more complex story. In recent months,
Mr. Maffei floated an offer to internet radio company Pandora Media
Inc. for roughly $15 a share, several dollars more than where
shares were trading at the time, people familiar with the matter
said. That would have valued the company at more than $3.4
billion.
Mr. Maffei's bid didn't have the characteristics of a formal
offer, one of the people said, appearing to be more of "a fishing
expedition." Pandora's board rebuffed the advance, the people said,
because it believes the company's true value is closer to what it
was in the fall, when the shares were trading around $20, the
person said. Pandora had shopped itself to other potential buyers
including Apple Inc. and Amazon.com Inc. earlier this year, others
familiar with the matter said.
Later, in a private June investor meeting in Denver, Mr. Maffei
talked up the benefits of a potential Sirius-Pandora tie-up,
according to people who were there. Asked during the meeting why a
deal hadn't been sealed yet, he told attendees, "You'd have to ask
the Pandora board."
Now investors are wondering whether Mr. Maffei will raise his
bid—and what he might do with the prize.
Liberty Media could combine Pandora with Sirius XM, which it
controls through a 64% stake. The satellite radio company has built
a profitable subscription business on strong partnerships with car
manufacturers. But it faces a looming threat from the rise of
streaming media and internet-connected cars: Will customers
continue paying $15 a month when they can easily stream music in
their cars through cheaper or free services on their
dashboards?
Pandora would instantly give Sirius scale in streaming, with 80
million listeners who mostly tune in on their mobile phones. But
Pandora, which generates revenue largely from advertising, has an
entirely different business model and much higher content costs
than Sirius XM.
The satellite radio company pays less than 11% of revenue on
recorded music royalties through next year, in accordance with
federal licensing rules.
Pandora, in contrast, spent 52% of its revenue last year on
music costs since internet radio firms pay on a per-stream
basis.
In an interview, Sirius XM Chief Executive Jim Meyer declined to
comment on any approach to Pandora. But he said that since his
company represents a $5 billion part of the $25 billion radio
business, he often kicks around whether he would like to have a
bigger play in the business or not.
Sirius already has its own mobile app, though few use it, and it
is working to offer a satellite-streaming hybrid next year with
personalized recommendations and customization.
"I don't need any streaming partner to do that," Mr. Meyer said.
But, he emphasized, "We will do whatever we need to for our
customers to keep paying us."
Some analysts and investors believe Liberty Media could house
Pandora separately from Sirius XM. Indeed, it could match up with
the concert and ticketing business of Live Nation Entertainment
Inc., in which Liberty Media has a 34% interest.
Meanwhile, Pandora has been going through a tumultuous period.
Its shares tumbled last October when Pandora announced a $90
million settlement payout to record labels over its unpaid use of
pre-1972 music. It also reported a dip in listening due to Apple
Music's launch. Pandora shares, which had traded as high as $40 in
2014, have fallen to $12.35.
The cost outlook brightened in December when the Copyright
Royalty Board announced the internet radio company would pay far
lower rates for music than record labels and artists had been
pushing for.
In March, Pandora replaced Chief Executive Brian McAndrews with
its charismatic founder Tim Westergren, who has since played down
sale rumors. Asked about interest in buying Pandora at a June
investor conference, Sirius Chief Financial Officer David Frear
noted that "among the streaming companies, Pandora has a better
opportunity for a solid business model" and "the better opportunity
to make money."
Ryan Knutson contributed to this article.
Write to Hannah Karp at hannah.karp@wsj.com, Shalini
Ramachandran at shalini.ramachandran@wsj.com and David Benoit at
david.benoit@wsj.com
(END) Dow Jones Newswires
July 21, 2016 12:35 ET (16:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Sirius XM (NASDAQ:SIRI)
Historical Stock Chart
From Aug 2024 to Sep 2024
Sirius XM (NASDAQ:SIRI)
Historical Stock Chart
From Sep 2023 to Sep 2024