In what some may label a “fire sale” at troubled streaming audio company Pandora Media, the Oakland, Calif.-based company getting a $480 million investment from Sirius XM has just agreed to sell its only radio station for half of what Pandora paid for it exactly four years ago.
Tucson-based Kalil & Co. represented Pandora in this transaction, which sees a South Dakota FM end up in the hands of a local broadcast company.
In a transaction filed with the FCC on Monday (6/19), Pandora has agreed to sell KXMZ-FM 102.7 in Box Elder, S. Dakota, to Haugo Broadcasting for $300,000.
According to persons close to the matter, “Pandora wanted to put it back in the hands of the community.”
In doing so, it expects a “normal” closing in either Q3 or Q4, pending FCC approval.
What wasn’t noted is that Pandora purchased KXMZ in June 2013 from the Jeff Warshaw-led Connoisseur Media for $600,000.
Pandora’s purchase of KXMZ was widely reported, as the streaming audio company hoped to leverage ownership of a broadcast radio station into more favorable music licensing deals with composer royalty organizations such as BMI and ASCAP.
This lead ASCAP in July 2013 to petition the FCC to deny the transfer of control of KXMZ to Pandora, primarily on the grounds that local service would be practically nonexistent and was not the reason it wished to acquire the Class C2 50kw CHR/Pop facility.
“Pandora’s interests and priorities lie only in its millions of internet music listeners who have absolutely no connection to KXMZ or the Rapid City area, and in attempting to minimize the payments to songwriters for the value they bring to Pandora’s online music streams, not in serving the thousands of local residents and listeners who depend on the station,” ASCAP said in its FCC petition.
The FCC finally acted in May 2015, giving Pandora the right to acquire KXMZ despite the fact that it couldn’t definitively quantify its level of foreign ownership. Then Commissioner (and now FCC Chairman) Ajit Pai slammed the agency for taking two years to resolve the issue between Pandora and ASCAP; Pai has already loosened the FCC’s rules on foreign ownership as Chairman.
Pandora closed on KXMZ in June 2015; the $600,000 purchase price was in and of itself a bargain of sorts, as Connoisseur acquired it during Auction No. 37 in late 2004 as a stand-alone facility for $740,350.
With Pandora shares in a free-fall (at 10:52am Eastern shares in “P” were off 2%, to $6.85), the sale of KXMZ for half of what Pandora paid for it could further unnerve investors who advocated for Sirius XM’s wholesale acquisition of Pandora, rather than a near half-billion investment.
Conversely, some investors may believe the sale of KXMZ is beneficial, as Pandora can now rely on Sirius XM for music licensing rates and all associated expenses.
KXMZ’s future, however, is now in the hands of a prolific local broadcaster that also owns Class C1 Country KIQK-FM 104.1 in Deadwood, S. Dakota, and Class C 1kw/1 tower Sports KTOQ-AM 1340 & Class C Rock KSQY-FM 95.1 in Rapid City.
HOW PANDORA’S SALE IS STRUCTURED
While the total sale price of KXMZ is $300,000, the deal calls for Pandora to pay $200,000 at closing while $100,000 shall be held back by Haugo at closing “in order to satisfy certain obligations.”
What does that mean?
Haugo has the right to hold back 1/3 of the purchase price at closing “to provide for transition expenses” at its discretion, subject to existing contractual commitments and local, state and Federal laws.
To the extent necessary, Haugo will apply some of the hold back money to any payroll tax obligations attributed to such transition expenses. It will provide a final accounting of the payments made from this hold back fund no later than six months from closing.
A $30,000 escrow payment has been made by Haugo to EagleBank of Bethesda, Md., with legal counsel Cary Tepper serving as Escrow Agent.
Pandora’s legal counsel in this transaction is Mark Schneider of Sidley Austin LLP.
