Stock analysts are not convinced that the U.S. Justice Department will achieve its broader goal of splitting Live Nation's concert promotion and ticketing businesses, reversing the controversial merger it cleared in 2010. But if Live Nation and Ticketmaster become separate companies, analysts estimate the combined companies will be worth $85 to $96 per share, based on a handful of reports Advertising sign has seen
Shares of Live Nation traded around $101 to $102 a day before the lawsuit was announced on May 23. However, shares have since traded in the $93 to $94 range, placing the current price at the upper end of analysts' “sum of the parts” ( SOTP ) estimates. In the wake of the lawsuit, some analysts lowered their price targets for Live Nation and S&P Global downgraded its rating on Live Nation's debt.
Any good merger creates value greater than the sum of its parts. Live Nation's business model is a “flywheel” in which one segment (such as concerts) generates value for other segments (tickets or sponsorships and advertising). For the company, the flywheel is the result of competitive advantages hard-won over the past 14 years. To the Justice Department, the flywheel represents Live Nation's ability to use its dominant market position to its advantage in anticompetitive ways.
Breaking up Live Nation would eliminate synergies that create value for the combined company. What is today one stock will become two stocks of two separate companies with different management teams. Live Nation shareholders will likely acquire ownership of the new, standalone Ticketmaster. Analysts calculated the value of Live Nation and Ticketmaster using a SOTP approach that combines the value of the business segments as if they were standalone companies.
But analysts have serious doubts that the Justice Department will be able to break up the company. “Federal judges … are generally pro-business, and we doubt it — at least on grounds [the DOJ’s 128-page] summary — the case is strong enough to either break up Live Nation or win the DOJ at trial,” the Huber Research analyst wrote. Doug Arthur in a note to investors on Thursday (6 June). Similarly, JP Morgan sees “a real possibility [Live Nation] comes out of this a winner” and thwarts the DOJ’s ultimate goal of breaking up the company, analysts wrote in a May 29 note to investors.
“The government's burden will be quite high” Bill Morrisonpartner at Haynes & Boone, says Advertising sign. “In antitrust jurisprudence it has long been the case that it is not illegal to have a monopoly. What is illegal is the use of this monopoly power in an anti-competitive manner. And so that would be the burden that the Justice Department would have to prove, which is to show that Live Nation abused its monopoly power and acted unreasonably in restraint of trade to maintain its monopoly.”
However, there could be outcomes other than a forced assignment. Analysts at Wolfe Research note that “DOJ doesn't lose if it reaches for the stars and lands on the moon,” they wrote in a May 23 note. “From that perspective, it is entirely possible that the DOJ wants to get Live Nation/Ticketmaster to agree to remedies, such as ending their exclusive ticketing agreements, and is using the threat of dissolution to achieve those goals.”
The very existence of the DOJ lawsuit has changed the way investors will approach Live Nation. The health of Live Nation's concert business and strengths will be overshadowed by the DOJ's pulse. Northcoast Research downgraded Live Nation from “buy” to “neutral” because analysts believe the stock's price will be driven by legal news and the political environment rather than fundamentals and business performance. JP Morgan also noted a “sentiment projection” related to the DOJ lawsuit and cut its price target to $116 from $126, although it maintained its “overweight” recommendation.
A largely unmentioned variable is the potential change in administration in the White House. President Biden has taken an aggressive stance on protecting competition — the DOJ scuttled proposed mergers by Spirit-JetBlue and Penguin Random House-Simon & Schuster — reducing fees faced by consumers on everything from airlines to concert tickets to criminal charges prosecuting companies over anti-poaching and wage-fixing rules. A second Trump administration would bring a whole new set of appointments to head important antitrust positions. “It depends on who's in those basics [regulatory] points and then what are the priorities of those offices and the philosophy,” says Morrison. “We've seen big turnarounds in the past.”
Advertising sign Live Nation has been contacted for comment on this story.
