Regulators Are Biggest Obstacle to Ticketmaster / Live Nation Deal - Citibank

Includes: LYV, TKTM
by: TMT Analyst

Ticketmaster Entertainment (TKTM) and Live Nation (NYSE:LYV) announced the signing of a proposed 50/50 all stock merger agreement whereby TKTM shareholders would receive 1.384 shares of LYV for every share of TKTM. Based on the exchange ratio and LYV current trading price, this would represent a 10% premium to TKTM’s current price of $6.15. The combined entity is to be named Live Nation Entertainment, and the transaction is expected to close in 2H09 if the merger receives shareholder and regulatory approval.

The biggest hurdle is regulatory approval for the deal, which is likely to face intense anti-trust scrutiny. In fact, several senators have already voiced concerns about the deal. I cannot handicap this one with conviction the way I did with the Yahoo (NASDAQ:YHOO) - Google (NASDAQ:GOOG) search deal, but I am sure this one will keep several merger arbitragers up at night. But true to form I will venture a guess: I bet this one passes regulatory muster but there are likely to be concessions or restrictions. My rationale will be detailed in another post.

From Citigroup Internet Analyst Mark Mahaney:

Strategic Rationale Focused On Improving Industry Fundamentals— On a management conference call, the companies cited the following key opportunities that the combination could enable: 1) increasing transparency by aligning promotions, ticketing and artist objectives; 2) More efficient and “creative” pricing options including all-in-pricing, and 3) encourage industry adoption of ticketing technology innovations such as paperless ticketing to improve overall fan experience.

Targeting $40MM In Synergies — The companies estimate that there is roughly $40MM in potential cost saving synergies primarily from ticketing, marketing, back office and data center functions. On the call, Live Nation CEO, Michael Rapino, noted that this estimate did not include any potential benefit from revenue synergies, which he expected could be material. Cost synergies are
targeted to be achieved by the anniversary of the transaction close.

Potential Client Defection And Regulatory Approval Are Risks — While the potential benefits to LYV and TKTM seem relatively clear, key ticketing clients such as AEG may view the combination as inherently conflicted, and TKTM runs the increasing risk of client defections when contracts come up for renewal. And finally, the biggest hurdle, in our view, is likely to be regulatory. Consistent with the acquisition of Paciolan in 2008 (now Ticketmaster Irvine), investors should expect regulators to scrutinize this transaction just as (if not more) closely.