Will U2 Stock Sale Hurt Live Nation?

U2 Deal Questioned

U2's decision to ask LIVE NATION INC to sell stock used as a cash advance for a touring and merchandise deal will be costly for the concert promoter with shares near all-time lows, reports U.K.'s THE GUARDIAN. The band's move also made LIVE NATION's rivals at record labels question the validity of a business model that pays big upfront fees to marquee artists with the view to building joint ventures encompassing artist rights to everything from concerts and CDs to t-shirts and websites.

In MARCH, LIVE NATION agreed to pay U2 around $25.7 million as an advance for a multimillion dollar 12-year deal covering global rights for the band's touring, merchandise, digital and branding. The deal was hailed as ground breaking because it allowed U2 to benefit from the growth of its partner by being paid with around 1.6 million LIVE NATION shares.

But LIVE NATION's stock has tanked more than 70% this year to $4.04 at the close on THURSDAY, partly in line with general equity market weakness, but also on concerns tickets sales will fall in 2009 due to worsening recession.

"LIVE NATION will be putting pressure on its own stock by raising funds from a like amount of stock being sold on the market or in private transactions, plus it will need to use $19.6 million cash on hand or from credit lines or both to make up the difference," said MILLER TABAK analyst DAVID JOYCE, in a note to clients.

LIVE NATION executives confirmed it may also need to pay out a similarly sized share-based fee to pop star MADONNA early next year if the MATERIAL GIRL opts to take the cash.

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