Long-term Investment |
6 Months Ended |
|---|---|
Jun. 30, 2017 | |
| Investments, All Other Investments [Abstract] | |
| Long-term Investment |
Long-term Investment
On June 9, 2017, Sirius XM entered into an agreement to purchase a 19% interest, or approximately 16% on an as converted basis, in Pandora for $480,000. Pandora operates an internet-based music discovery platform, offering a personalized experience for listeners.
The Investment Agreement with Pandora relates to the issuance and sale of 480 shares of Pandora’s Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $480,000, or one thousand dollars per share. In accordance with the Investment Agreement, Sirius XM purchased 172.5 shares of Series A Preferred Stock on June 9, 2017 for $172,500 (the “Initial Closing”), and will purchase the remaining 307.5 shares for $307,500 at a future date (the “Additional Closing”), subject to satisfaction of certain customary closing conditions, including, among others, obtaining clearance under the Hart-Scott-Rodino Act.
Beginning on the date of the Additional Closing (or if the Investment Agreement is terminated prior to the Additional Closing, the date of such termination), the Series A Preferred Stock is convertible at the option of the holders at any time into shares of common stock of Pandora (“Pandora Common Stock”) at an initial conversion price of $10.50 per share of Pandora Common Stock and an initial conversion rate of 95.2381 shares of Pandora Common Stock per share of Series A Preferred Stock, subject to certain customary anti-dilution adjustments. Holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 6.0% per annum, payable quarterly in arrears, if and when declared. During the three and six months ended June 30, 2017, we recognized $604 related to the dividend which was recorded to Other (expense) income in our unaudited consolidated statements of comprehensive income and Long-term investment within our unaudited consolidated balance sheets. Any conversion of Series A Preferred Stock may be settled by Pandora, at its option, in shares of Pandora Common Stock, cash or any combination thereof. However, unless and until Pandora’s stockholders have approved the issuance of greater than 19.99% of the outstanding Pandora Common Stock, the Series A Preferred Stock may not be converted into more than 19.99% of Pandora’s outstanding Pandora Common Stock as of the Initial Closing.
The investment includes a mandatory redemption feature on any date after the fifth anniversary of the Additional Closing (or, if the Additional Closing does not occur, the fifth anniversary of the Initial Closing) at 100% of the liquidation preference plus accrued and unpaid dividends and therefore the investment qualifies as a debt security under ASC 320. As the investment will include a conversion option upon the Additional Closing, we have elected to account for this investment under the fair value option to reduce the accounting asymmetry that would otherwise arise when recognizing the changes in the fair value of available-for-sale investments. Under the fair value option, any gains (losses) associated with the change in fair value will be recognized in Other (expense) income within our unaudited consolidated statements of comprehensive income. There was no gain or loss recognized during the three or six months ended June 30, 2017 associated with this investment.
Pursuant to the Investment Agreement, upon the Additional Closing, Pandora has agreed to appoint three individuals, including the Chairman, to be designated by us to Pandora’s board of directors. Once this occurs, we will reclassify the investment to related parties.
Our right to designate directors will fall away once we and our affiliates fail to beneficially own shares of Series A Preferred Stock and/or Pandora Common Stock issued upon conversion thereof equal to (on an as-converted basis) at least 50% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment Agreement. Following the earlier to occur of (i) the second anniversary of the Additional Closing and (ii) the date on which we and our affiliates fail to beneficially own shares of Series A Preferred Stock and/or Pandora Common Stock that were issued upon conversion of Series A Preferred Stock equal to (on an as-converted basis) at least 75% of the number of shares of Pandora Common Stock issuable upon conversion of the Series A Preferred Stock purchased under the Investment Agreement, we have the right to designate only two directors.
We are subject to certain standstill restrictions, including, among other things, that we are restricted from acquiring additional securities of Pandora for eighteen months after the Initial Closing.
The Investment Agreement may be terminated by either party if the Additional Closing has not occurred by February 1, 2018, subject to extension in certain circumstances. However, if all applicable closing conditions have been satisfied as of such date other than with respect to the expiration or early termination of the applicable waiting period under the HSR Act, such termination date will be extended for an additional 60 days.
Beginning on the date of the Additional Closing, we are entitled to vote as a single class with the holders of Pandora Common Stock on an as-converted basis (up to a maximum of 19.99% of the Pandora Common Stock outstanding on the date of the Initial Closing, unless stockholder approval has been received). Effective as of the date of the Initial Closing, we are also entitled to a separate class vote with respect to certain amendments to Pandora’s organizational documents, issuances by Pandora of securities that are senior to, or equal in priority with, the Series A Preferred Stock and the incurrence of certain indebtedness by Pandora.
Upon certain change of control events involving Pandora, Pandora is required to repurchase all of the Series A Preferred Stock at a price equal to the greater of (1) an amount in cash equal to 100% of the liquidation preference thereof plus all accrued but unpaid dividends through the fifth anniversary of the Initial Closing (assuming such shares of Series A Preferred Stock remain outstanding through such date) and (2) the consideration the holders would have received if they had converted their shares of Series A Preferred Stock into Pandora Common Stock immediately prior to the change of control event (disregarding the 19.99% cap).
Beginning (i) after the third anniversary of the date of the Additional Closing (or, if the Additional Closing does not occur, the third anniversary of the Initial Closing) or (ii) after the Investment Agreement is terminated prior to the Additional Closing, if the volume weighted average price per share of Pandora Common Stock exceeds $18.375, as may be adjusted, for at least 20 trading days in any period of 30 consecutive trading days, Pandora may redeem all of the outstanding Series A Preferred Stock at 100% of the liquidation preference thereof plus all accrued but unpaid dividends for, at the election of Pandora, cash, shares of Pandora Common Stock or a combination thereof, provided that Pandora may not settle the redemption for shares of Pandora Common Stock to the extent the 19.99% cap would be exceeded.
Pursuant to a registration rights agreement entered into with Pandora, we have certain customary registration rights with respect to the Series A Preferred Stock and Pandora Common Stock issued upon conversion thereof.
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