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For U2, Live Nation Deal Rocks

Band's Stock Sale Will Cost Company Millions; Madonna Can Cash In, Too

Wall St. Journal, December 18, 2008
By: Ethan Smith

 

The Irish rock band U2 hasn't toured since 2006, but it stands to make $25 million in a sweetheart stock deal, according to SEC filings Wednesday and people familiar with the matter.

In March, the band struck a 12-year deal with Live Nation Inc., that called for the concert promotion giant to pay U2 partly with stock. Live Nation promised to pay tens of millions of dollars to high-profile artists in exchange for several years' worth of revenue from a broad range of their work, including concerts, online fan clubs and t-shirt sales. The idea was pitched as a novel way to make money in the ailing music business.

The company had held up the stock component of the U2 deal as evidence of the band's faith in Live Nation, as well as confidence in its new business model.

But that faith was shaken Wednesday when the band moved to sell the shares, forcing Live Nation to make up an estimated $19 million in losses.

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% since she struck her deal in October 2007.

Live Nation Chief Executive Michael Rapino sought to play down the significance of the stock sales. "Madonna and U2 are the only two deals that did contain this provision," he said. "The Madonna business is great, and we look forward to monetizing our investment in U2 next year."

Madonna's current "Sticky & Sweet" world tour is the pop star's first outing since she signed her 10-year, $120 million deal with Live Nation.

Live Nation expects to start recouping its investment in U2 when the band begins a planned tour next year and releases its 12th album.

Reached in London, where U2 is wrapping up work on the forthcoming album, band manager Paul McGuinness said: "We're very much in business with [Live Nation] and we're planning to tour in 2009."

Madonna and U2 were the first of six superstar acts whom Live Nation has agreed to pay hundreds of millions of dollars each for several years' worth of revenues. Jay-Z, Nickelback and Shakira are among the other artists with whom Live Nation has deals.

(c) Wall St. Journal, 2008.

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