‘Merger Of Equals’ Faces Scrutiny

Live Nation and Ticketmaster announced Feb. 10 a game-changing intention to merge after days of intense media and industry speculation.

With a morning conference call and launch of a new Web site detailing the agreement, the two giants of the concert business announced a “merger of equals” into one that will likely influence every sector of the industry.

A key word is “intention.” The U.S. Department of Justice almost immediately announced its own intention to investigate the proposed marriage of two companies that will, if consummated, control more than 80 percent of the tickets sold in major arenas and stadiums in the U.S.

Once integrated, Live Nation Entertainment can lay claim to more than 280 million tickets processed and 140 million sold annually, with a gross transaction value of $8.3 billion for 11,000 venue clients across 20 countries, according to a joint statement from Live Nation and Ticketmaster.

“This combination will drive measurable benefits to consumers and accelerate the execution of our strategy to build a better artist-to-fan direct distribution platform,” Live Nation CEO Michael Rapino said in announcing the merger.

Of course, the deal isn’t just about the ducats – though ticketing is one prime catalyst that reconciled the one-time rivals.
With Ticketmaster’s acquisition of Irving Azoff’s Front Line Management last year, Live Nation Entertainment will represent well north of 200 management clients including those with existing Live Nation deals like Madonna, Jay-Z, Shakira, U2 and Nickelback and Front Line’s top clients including the Eagles, Christina Aguilera, Aerosmith and Jimmy Buffett.

The company will be able to put its artist clients into some 47 amphitheatres, 11 House of Blues venues, 46 other club and theatre locales and more than 30 international festivals.

And, with Live Nation’s previous acquisitions of MusicToday, Signatures Network and other fan club and merchandising companies, the company brings a lot of synergy to the table – what Live Nation calls the industry’s first artist-to-fan vertically integrated concert platform. Artists will be able to negotiate deals, book tours, sell tickets, beer, parking and merch all without ever leaving the reservation.

Pollstar and any number of other publications have already tackled the question: What does it all mean for the industry as a whole? The definitive answer will likely be a moving target for some time, even when and if the deal closes.

Rapino said in an investors’ conference call Feb. 10 that the deal is expected to close in the second half of the year. That may be an optimistic estimate if the DOJ holds up closing with a lengthy review.

“There is overlap in ticketing, there is overlap in venue control and there is overlap in talent management,” Robert Doyle, a Washington antitrust attorney and former Federal Trade Commission member, told Bloomberg News.

But the Feds may have a jump start on the process already, having taken close looks at Ticketmaster as well as Live Nation former parent Clear Channel Communications in years past.

Even if the deal appears to pass antitrust muster, those attempting to read the legal tea leaves cite the change from Bush World to the Obama Nation as a sign the deal won’t easily sail through DOJ scrutiny. That may be wishful thinking for opponents, given there’s been no real test yet to show the new administration’s approach to antitrust regulation will differ significantly from that of the old.

However, some observers were quick to note that there might be some perceived advantages to making the deal now rather than six months ago.

Live Nation director Ari Emanuel is the brother of Rahm Emanuel, President Barack Obama’s chief of staff.

And Ticketmaster director Julius Genachowski is a Harvard Law School classmate of Obama’s and was a co-leader of the Obama transition team’s policy working group on technology, innovation and government reform, according to the New York Times. He’s also believed to be Obama’s pick to head the Federal Communications Commission.

The DOJ’s antitrust division could choose to handle the case in any number of ways: do nothing, require the new company to sell off pieces of the business, or challenge the merger because it creates barriers to competition through vertical integration of artist management, concert promotion, venue control and ticketing, according to Bloomberg.

The DOJ may not be the only hurdle Rapino, Azoff and Barry Diller face before they can cross the merger finish line. New York Sen. Chuck Schumer and New Jersey Rep. Bill Pascrell have already asked for an investigation into the relationships between TM and subsidiary TicketsNow because of consumer complaints about recent onsale snafus with the Bruce Springsteen tour.

Both have reportedly written to U.S. Attorney General Eric Holder to oppose the merger and accuse Ticketmaster of attempting to acquire a competitor. And in Canada, a class action suit was filed Feb. 9 against Ticketmaster, accusing the company of diverting face value tickets to TicketsNow, where they allegedly then sold for higher prices.

And the New York investment and securities law firm of Levi & Korsinsky LLP announced it is investigating alleged breaches of fiduciary duty and other violations by the TM board triggered by the merger agreement.

Ticketmaster shareholders will receive 1.384 shares of Live Nation for each share of TKTM stock they own, which amounts to $7.32 per share based on the Feb. 9 closing price of LYV. Levi & Korsinsky alleges the transaction stiffs shareholders because, among other things, TM shares traded for more than $10 as recently as November. The firm encourages shareholders to contact it with any questions.

And the public doesn’t seem thrilled with the plan, either on music blogs or on Wall Street.

Standard & Poor’s Equity downgraded Live Nation Feb. 10 to “buy” from “strong buy,” saying it anticipates a “tough regulatory review” of the merger in both the States and in Europe that will put pressure on stocks for most of the year. S&P added that the potential benefits of the deal don’t seem “supremely convincing.”

As the markets closed Feb. 10, shares of Live Nation fell 9 percent to close at $4.82, while Ticketmaster shares fell 6.4 percent to $6.15. As of Feb. 12, LYV was trading at $3.85, and TKTM was down to $4.95.

For fans of inside baseball, there’s plenty to digest from the voluminous charts, stats and Securities and Exchange Commission filings released since the tie-up announcement.

The merger, accomplished in an all-stock transaction, will create a company with an enterprise value of some $2.5 billion, including more than $1.67 billion in combined debt. Based on Ticketmaster’s 57.21 million shares outstanding as of Nov. 7, the deal values the company at $403 million.

Rapino will retain his CEO title with the new company while Diller becomes Live Nation Entertainment’s chairman of the board. Azoff, presently sitting as Ticketmaster Entertainment CEO, will be executive chairman.

The idea of Rapino, Azoff and Diller working their magic under the same roof has set tongues wagging, but Rapino told Live Nation employees in a memo that he looks forward to sharing the office.

“I’m also thrilled at the prospect of working more closely with Irving Azoff,” Rapino wrote. “He is a visionary industry leader and, like all of us at Live Nation, is committed to improving the performer-to-fan relationship.”

Combined employees total more than 10,000 though it’s certain that number will be reduced as “redundant” staff is evaluated and streamlined. However, the companies will continue to operate as separate entities until the merger gets the blessing of regulators and both firms’ shareholders.

The new board of directors will face streamlining, too. Live Nation Entertainment’s board will consist of seven directors each from the present Live Nation (10 directors) and Ticketmaster (13 directors) boards.

There’s been no indication of which seven from each board will stay on, but both include holdovers from former corporate parents including Terry Barnes and Sean Moriarty on TM’s board and present LN chairman Randall Mays and his father, Lowry.