U2’s Live Nation Deal Is Good for Madonna, Bad for Investors
by Peter Kafka
Posted on December 18, 2008 at 7:08 AM PT
In addition to myriad rock star perks you’ve already heard about, here’s another one to add to the list: Better stock deals. At least when you’re talking about stock in concert promoter Live Nation.
The company spun off from the radio and billboard giant Clear Channel a couple years ago and has been trying to lock up big name artists to exclusive deals by shoveling tons of loot their way. Madonna, U2, Jay-Z and others have gladly accepted pacts that pay them hundreds of millions of dollars to work exclusively with the company.
Some of those payments have been in stock, which is supposed to indicate that the company and the music acts are all in the same boat. And since Live Nation (LYV) shares have gotten pummeled, you’d think those music acts would be hurting too. Nope.
Live Nation had guaranteed that U2 would receive $25 million for 1.6 million shares. But the current market value was just $6.1 million at the close of trading Wednesday. That leaves Live Nation on the hook for the balance, which the company said Wednesday in a SEC filing it would pay with cash on hand or borrowed money.
There could be more bad news coming from another of the company’s marquee acts: Madonna. In April, Madonna is eligible to sell $25 million of stock under the terms of her contract, even though the stock’s market value has plunged 83 percent since she struck her deal in October 2007.”
That’s lousy news for Live Nation shareholders. U2’s cash-out put even more pressure on the stock (the company is selling 1.56 million shares of its own to help pay for U2’s deal), and news of the Madonna deal will do the same.
The bigger question is whether Live Nation’s strategy ever made sense: It was supposed to use the big name acts to help it expand beyond the concert business and into other revenue streams… like selling CDs. Understandable why the company wanted to diversify beyond concerts, which are high-risk, low-margin affairs. But signing big acts to big, guaranteed contracts is one of the things that got the music business in the trouble it’s in now.
But let’s give the old music industry some credit: It did bring us some pretty good music. Here’s U2, circa 1983:
Comments
It would not surprise me at all to see U2 turn around and buy $25 million worth of shares down around this $4 a share price. With 78 million shares out there that could actually give them a pretty serious stake in the company which may be in U2’s interest since they do have a 12 year deal.
Posted by Adam Knight at December 19th, 2008 at 7:34 am