Pandora’s biggest shareholder slams founder, pushes for sale

Image: Pandora Founder and CEO Tim Westergren

Pandora’s largest shareholder has penned a letter to Pandora CEO Tim Westergren and his board of directors detailing concerns about the streaming business’s direction.

Keith Meister, a Managing Partner at Corvex Management, wrote: “We have become increasingly concerned that the company may be pursuing a costly and uncertain business plan.” 

Meister also disclosed Corvex Management’s stake in Pandora Inc., mentioning the investment firm has ownership of “approximately 22.7 million shares and share equivalents of Pandora representing approximately 9.9% of the company.” Westergren, Pandora’s Founder, only owns 1.8% of the business.

The online radio giant saw its stock price jump over 9% in February amid reports it was considering a sale. However following Westergren’s return as CEO in March - to step it in for the exiting Brian McAndrews - stock dropped by 12.2% as rumours of a sale were quelled.

According to the most recent trading, Pandora shares are up 6.11% to US$10.59. When the company went public in 2011, its share price was $16.

In 2014 Pandora was valued at $7.73bn. However, it has failed to turn a profit as a public company; today its NYSE valuation is $2.29bn.

The letter, included in a regulatory filing, shows the investor is unhappy with Pandora’s share price slide.

“We also hope you share some of the frustration of stockholders over the company’s poor absolute stock price performance, stock price underperformance relative to the market, and stock price underperformance relative to industry peers over the last year, two years, three years, and since the company’s initial public offering, respectively.” 

The damning letter notes Corvex were surprised by Westergren’s reappointment after it had been in discussions with current Pandora board Chairman Jim Feuille about nominating three new board members.

“Given the nature of our various discussions, we were surprised by the appointment of Tim Westergren as CEO replacing Mr. McAndrews (as well as Mr. McAndrews’s immediate departure from the Board) on the morning of Monday, March 28, 2016.  As you know, this management and Board change had not been addressed in any of our conversations, including at the time of our notice withdrawal on Wednesday, March 23, 2016 – which we do not believe was a coincidence.”

Meister pointed to Westergren’s public statements after his appointment as CEO, saying they “suggest an unwillingness to consider a sale regardless of the price offered to shareholders.” 

One of Westergren’s public comments published in the letter was from an interview he did in April with Fast Company.

“Being CEO is like managing my band. It’s got all the same things. The chances of success are almost zero. It’s a creative endeavor with lots of artistic differences. You’re poor as s***. You’ve got financial stress. It’s the same thing.”

“[…] we find it difficult to reconcile Mr. Westergren’s idealism and music industry evangelism with the goal of maximizing risk-adjusted shareholder value and your responsibilities to investors,” the letter reads. 

The letter also questioned Pandora’s US$450m acquisition of Ticketmaster-type site Ticketfly last October, calling it a “questionable” capital allocation decision. 

At the heart of the letter is a push for Pandora to become part of a bigger company and to explore a possible sale with the help of a new bank.

“Simply put, we believe Pandora can become an even more differentiated product and a more valuable business as a part of a larger enterprise […] We urge the company to immediately engage an independent investment bank with a fresh perspective and no prior relationship with the company to advise on a value maximization process including a thorough sales process.”

In an emailed statement published by Wall Street Journal, Pandora said it “has a profitable core business, combined with a strong balance sheet. We are confidently investing to fully capture the massive opportunity ahead of us.” Pandora said it’s “in constant dialogue with shareholders about our business strategy and committed to delivering results and long-term value.”