Pandora has announced a private placement of $300-million worth of convertible notes — essentially, the company is raising cash. The method is similar to offering more stock shares to the market, and in fact the notes could be converted to stock shares when they are due in 2020.
No matter the conversion method in five years, Pandora is trying to borrow $300-million now.
An ancillary offer of $45-million to financial house Morgan Stanley, which is managing the entire offering, raises the potential stake to $345-million.
Perhaps unsurprisingly, Pandora stock is tumbling on the news; we’ve watched it roll downward fairly steadily today — at this posting the share price has plunged nine percent.
Pandora recently announced its intent to acquire assets from going-under music service Rdio, in a bankruptcy process, for $75-million. In a conference call after that announcement, Pandora CEO Brian McAndrews noted that the purchase was affordable, and that the company had $180-million cash.
Unlike many venture capital fundraising announcements, there is no mention of how the expanded war chest will be used. All we know for certain is that Pandora is planning a hugely expansive 2016 in which it redefines its business, enters new international markets, and develops a major new on-demand product to sit alongside its market-leading Internet radio service. It is arguably the largest bet being placed in the online audio field today, putting the two brands which most people identify with streaming music — Pandora and Spotify — nose to nose.
So while Wall Streets’ reaction could be predicted, it’s also no surprise that a titanic business plan needs cash.