Live Nation’s stock climbed more than 1% in pre-market trading today after BTIG Research’s Brandon Ross upgraded the stock to buy and predicted a merger between the live-entertainment giant and Liberty/SiriusXM.
“We and a growing group of investors have come to believe a nearer-term combination of SiriusXM and Live Nation is inevitable,” he wrote. “We believe Liberty President and CEO, Greg Maffei, has long desired to combine Sirius and Live Nation into a single music distribution company and has encouraged a marriage of his two music industry interests in the past.” Long-percolating rumors about a possible merger between the two companies began heating up over the past couple of weeks; reps for Live Nation and SiriusXM declined comment or did not immediately respond to Variety’s requests for comment.
Ross said a potential deal is attractive to Sirius because the company appears to have a “terminal value problem” as it lacks logical places to employ its free cash flow. Live Nation, which is the world’s largest live-entertainment promoter, owns TicketMaster and also operates venues, “is near maximum leverage.”
“Live Nation’s flywheel continues to turn with increased velocity,” he wrote. “On top of its vertical integration, the company has built an insurmountable competitive moat especially in the United States, allowing it to find new ways to win every year.” The company boasted a bullish first-quarter earnings report in May.
He enumerated the reasons why a merger makes sense. “We believe Liberty President and CEO, Greg Maffei, has long desired to combine Sirius and Live Nation into a single music distribution company and has encouraged a marriage of his two music industry interests in the past.
“So what has changed to make us think a merger is coming closer to reality?,” he continued. “To start, we do not see an acquirer for SiriusXM, especially after AT&T / Time Warner has closed. … A Sirius acquisition of Live Nation could help solve Liberty’s problems by helping to (at least optically) protect SiriusXM’s terminal value, giving that company a better use of capital, and at the same time improving some of the forces that have led to a senseless tracking stock discount (currently sitting at 25%).”
However, he says that Sirius “will have to pay a significant premium to get a deal done,” and points to Amazon and “even Spotify” as potential competitors to acquire Live Nation.
“Music remains a top priority for Amazon and that company is constantly looking for additional businesses to add to its own flywheel and enhance Prime. They also could significantly improve Ticketmaster.”
But, he notes, “Spotify is the most intriguing to us, even if it is a longer shot and has antitrust risk. The potential synergies and value unlock could be immense. We love Spotify stock (link) and are extremely bullish about its global subscriber growth and future share of listening. But, there is still one major question surrounding the company’s future: how much it can move its gross margins through improved deals with the major labels.”
He concludes by saying “we still believe a SiriusXM acquisition of Live Nation would benefit the Liberty complex, especially under certain structures (in addition to giving Maffei the end-to-end music distribution company he has long desired),” and notes that Live Nation’s board — led by Maffei — and management, with CEO Michael Rapino (pictured above), are in the driver’s seat in terms of a potential deal. It also predicts that Rapino would become head of the combined company, since SiriusXM CEO James Meyer is expected to step down at the end of the year.