The news about the proposed Ticketmaster and Live Nation merger is out and the effusive press releases have stopped, but the drama continues.
In the week following the announcement that two of live entertainment’s biggest entities plan to merge into the biggest behemoth of them all, shareholders and critics have lined up to take swings at the deal.
Right out of the gate, the New York Times and Bloomberg News reported that Live Nation’s largest shareholder has a beef with Ticketmaster Board Chairman Barry Diller, implying that a shareholder revolt was possible.
Sam Shapiro, chairman of Los Angeles-based Shapiro Capital Management, told Bloomberg, “I’m very much against going into business with Mr. Diller” because of poor returns from the companies he leads.
Diller is also chairman and CEO of IAC/InterActiveCorp, which spun Ticketmaster off last year. Prior to that, he launched Fox and USA networks, and spent 10 years at the helm of Paramount Pictures.
Shapiro owns a 15.15 percent stake in Live Nation with just shy of 12 million shares, according to a Feb. 3 filing with the Securities and Exchange Commission. He told Bloomberg in an interview that he may support the deal if Diller accepts a diminished role with Live Nation Entertainment.
Live Nation CEO Michael Rapino defended the deal on a conference call, saying, “We will be able to deal with all of Sam’s concerns,” in response to a statement by Louis Shapiro saying his father “worried about value creation.”
Rapino called Shapiro’s objections “minor to whether he’ll vote yes or no in the big picture,” Bloomberg reported.
While the Shapiros appeared initially to send a very mixed message, Sam Shapiro moderated his stance in a later interview.
“There’s never been a question whether I think the combination of the two companies is a big positive,” Shapiro told Reuters, adding that he believes Rapino has done “everything and more” to create value for shareholders.
“As investment managers, we’re interested in creation of shareholder value for our clients,” he said. “I was worried about Barry Diller because shareholder return of value to his companies have not been that great.”
Shapiro also said he would eventually be interested in increasing his firm’s stake in Live Nation.
But he’s not the only one who is less than thrilled with the merger prospect. On the Ticketmaster side, attorneys for shareholder Jack McBride of Michigan filed a class action suit against the company’s board of directors alleging a breach of fiduciary duties in making a deal that he claims undervalues its stock.
McBride filed the suit in Los Angeles Superior Court Feb. 13, rather than in Delaware where both corporations are registered, and asked the court to define a class of all non-insider Ticketmaster shareholders.
Among McBride’s claims is that the board is dominated by “non-independent” shareholders who own more than 30 percent of the company’s outstanding stock, including Azoff, whose $35 million in stock represents an additional 10 percent stake.
He also accuses “insider” directors of causing Ticketmaster’s stock to tank in order to enrich themselves.
Court documents cite Ticketmaster’s falling stock price since the merger announcement, and the offer of 1.384 shares of Live Nation common stock for each share of TM stock owned by shareholders. Calling the offer “inadequate,” McBride claims that according to the terms of the proposal, and based on LN’s price at the end of business Feb. 9, Ticketmaster shareholders “would receive the equivalent price of approximately $6.67 per share.”
With “insiders” owning nearly one-third of the outstanding Ticketmaster shares and by-laws requiring only a simple majority to approve the merger, McBride alleges the transaction is “essentially a fait accompli” unless the court intervenes.
The suit concludes that the TM board, as a group and as individuals, breached fiduciary duty by attempting to undervalue shareholders’ investments in the company.
The proposed merger is “wrongful, unfair and harmful to Ticketmaster’s public stockholders … and represents an attempt by Defendants to aggrandize the personal and financial positions and interest of board members at the expense of, and to the detriment of, the stockholders of the company,” the complaint alleges.
“The Proposed Transaction will deny Plaintiff and other Class members their rights to share appropriately in the true value of the Company’s assets and future growth in profits and earnings, while usurping the same for the benefit of Live Nation at an unfair and inadequate price.”
McBride requests a permanent injunction to stop the merger, and unspecified damages and legal fees to be paid.
The suit has a few important hurdles to jump before it can be considered a potential threat to the merger, not the least of which is convincing a judge that the California court has jurisdiction.
If not, the case could be sent to Delaware, where the laws are believed to heavily favor the defendant in such cases and it will likely be much harder to certify a class. Most likely the only winner in that case would be the lawyers.
But courtroom and boardroom maneuvering aside, not many outside of either company are singing the proposed merger’s praises despite assurances from Rapino and Azoff that the deal will benefit consumers and lead to lower ticket prices.
An unnamed spokesman for one of Live Nation’s biggest rivals told Reuters the merger was a “major concern” because LN would gain access to confidential sales data.
“Plus the fact that we would be helping a competitor, since they would be making money from selling tickets to our events,” the critic said.