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Why Would Verizon Invest $100 Million in Pandora?

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Valuing Pandora at $2.8 billion

Verizon (VZ) is contemplating making an investment of $100.0 million in Pandora (P), the New York Post reported earlier this month. The investment by Verizon was expected to come if Pandora failed to reach a deal with Liberty Media to acquire it. Pandora had until June 8 to sell itself.

Unnamed sources told the New York Post that Liberty Media, the parent of satellite radio provider Sirius XM (SIRI), had been in talks to acquire Pandora for between $11.00 and $12.00 per share, which would value the company at ~$2.8 billion. If Pandora failed to get a buyer, private-equity firm KKR had also said that it would invest $150.0 million in the Internet radio company.

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Exclusive ad vendor for Pandora

Because Verizon has not clearly stated its plans for Pandora, the benefits it is seeking by investing in the streaming music provider can only be speculated about.

Investing in Pandora could be a boost to Oath, Verizon’s media unit that combines assets of AOL and Yahoo. According to analyst Roger Entner of Recon Analytics, Verizon’s investment in Pandora could be a strategic move to make Oath the exclusive ad vendor for Pandora.

However, Verizon could also be interested in the data belonging to Pandora’s active user base, which exceeds 80 million, comprising mostly young people. Verizon could use the data to make its products and services such as Go90 more appealing to these younger listeners.

Settling scores with rivals

Seeing the media moves by its rivals, investing in Pandora could also be viewed as a way for Verizon to settle a few scores with its competitors. Earlier in 2017, Sprint (S) invested $200.0 million in Pandora rival Tidal.

Pandora has had to review its options amid tough competition from Apple (AAPL) and Spotify, which have accumulated paying subscribers at its expense, as the chart above shows.

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