Key Brand Sues To Halt LN Theatre Sale

Key Brand Entertainment has accused Live Nation of ginning up bidding on 17 U.K. theatres and eventually rigging their sale to Ambassador Theatre Group.

The sale was announced Nov. 2, one business day after Key Brand filed its breach-of-contract suit in Los Angeles Superior Court.

The sale of theatres to ATG, as well as its one-third interest in London’s Dominion Theatre to Nederlander Group, is expected to fetch about £100 million ($160 million) for Live Nation. The total represents a multiple of 10.4 times estimated 2009 operating income, according to a Live Nation statement announcing the sale’s Oct. 23 closing.

According to the terms of LN’s credit facilities, the statement said, approximately half the proceeds from the sale after payment of fees, expenses including taxes, and “adjustments for show cash utilized by the company and other adjustments” will be applied to reducing the company’s term loans. Any remaining cash is to go toward working capital.

“Despite extremely difficult economic conditions, our U.K. Theatre division has performed exceedingly well over the past year, enabling us to complete the sale at a price that represents an attractive valuation multiple,” LN President/CEO Michael Rapino said. “The proceeds generated from this sale allow us to continue our goal to de-lever our balance sheet by selling off assets that are not core to our live music strategy.”

But Key Brand claims in its suit that Live Nation drove that price up before ultimately jilting the company that already has acquired Broadway Across America and eight other North American theatre assets from LN.

In its complaint, Key Brand said it had made “multiple bona fide offers, supported by committed financing” to purchase the U.K. theatre assets and in compliance with a bidding rights agreement it negotiated with Live Nation in January 2008, according to court documents.

“After encouraging Key Brand for well over a year to submit increasingly higher offers to buy its U.K. Theatres and, after contractually obligating itself to provide Key Brand with full and most favorable bidding and matching offer rights, Live Nation – in the final hours or possibly after the close of bidding – unilaterally disclosed information about Key Brand’s bid to another bidder to make sure Key Brand’s final bid would not be the winning bid,” the company wrote in its complaint.

“Instead, in willful violation of Key Brand’s express contractual right to have the same information and to be subject to the same bidding rules as every other bidder, Live Nation … provided critical information about the amount of Key Brand’s bid and Key Brand’s matching bid rights to the defendant Ambassador Theatre Group Ltd., information which insured that ATG’s ‘final bid’ would not only exceed Key Brand’s £81.5 million bid, but would also be outside the reach of Key Brand’s contractual matching rights,” the complaint said.

Ambassador Theatre Group is also named with Live Nation as a defendant in the suit.

Key Brand seeks unspecified damages, including lost profits plus interest, attorneys fees, an injunction to stop the theatre sale, and an order that LN and ATG hold the theatres in question in trust for Key Brand.

A Live Nation spokesman declined to comment on the suit.

The sale means LN’s London venues including the Lyceum and Apollo Victoria would join an ATG portfolio that already includes such historic London theatres as The Duke of York’s and The Piccadilly. It also makes ATG Britain’s largest theatre operator, managing more than 11,000 seats.

To make the offer, ATG increased bank borrowing and raised new cash from shareholders, who include Sir John and Peter Beckwith, Greg Dyke, the former director-general of the BBC, and Simon Oliver, the outgoing chairman of food group Dairy Crest. Beckwith is ATG’s deputy chairman.

The deal, which is believed to have been in the works for months, would also transform ATG’s fortunes outside London, adding venues including the Liverpool Empire, Grimsby Auditorium and Edinburgh Playhouse. ATG already owns theatres in Brighton, Glasgow and Milton Keynes and will manage 38,000 seats outside the capital after the buyout.