An activist investor is putting pressure on Internet radio giant Pandora Media Inc. to sell the company, which is facing increasing competition in the growing streaming music industry.
Corvex Management, a hedge fund run by Keith Meister, on Monday wrote a letter to Pandora's board of directors encouraging the company to hire an independent investment bank to explore options including a sale.
In his note, included in a regulatory filing, Meister questioned recent decisions by the company, including the sudden appointment of founder Tim Westergren as chief executive, and the acquisition of online concert ticket merchant TicketFly.
Meister, a protege of billionaire Carl Icahn, suggested potential buyers could include Internet companies, mobile device makers and media conglomerates.
"Simply put, we believe Pandora can become an even more differentiated product and a more valuable business as a part of a larger enterprise," Meister said.
New York-based Corvex said in the filing that it owns 9.9% of Pandora's stock, or 22.7 million of the Oakland-based company's shares.
Pandora's stock jumped 7% to $10.69 a share in midday trading on Wall Street.
Pandora spokeswoman Stephanie Barnes did not comment directly on Meister's letter, but said in a statement that the company "is on the cusp of realizing an extraordinary vision."
"We are confidently investing to fully capture the massive opportunity ahead of us," Barnes said. "Our management team is in constant dialogue with shareholders about our business strategy and committed to delivering results and long-term value."
Founded in 2000, Pandora was one of the early leaders in streaming music, allowing users to create stations based on their own tastes. It counts roughly 80 million active users.
But the company has faced increasing competition from newer rivals, such as Spotify and Apple Music, that give users more control over which songs they want to hear.
In March, the company brought Westergren in as its chief executive, a job he first held from 2002 to 2004. Some had previously speculated that Pandora would pursue a sale, but Westergren's hiring appeared to quash those rumors.
Pandora has made a flurry of acquisitions to propel its growth and diversify its business by entering new segments such as live events and building on-demand features to better compete with others in the space.
It bought data firm Next Big Sound about a year ago, and paid $450 million for online concert ticket service Ticketfly in October. In November, it bought assets from now-defunct streaming rival Rdio to help it build more on-demand options. Pandora is also working to expand internationally, but needs licensing deals with record labels to do so.
Yet Meister questioned Pandora's growth strategy. The company's shares have fallen more than 45% in the last year.
"We have become increasingly concerned that the company may be pursuing a costly and uncertain business plan, without a thorough evaluation of all shareholder-value-maximizing alternatives," Meister said.