NOTE 3—ACQUISITIONS

 

During 2012, the Company completed its acquisitions of Coppel, Cream, HARD and other smaller acquisitions. These acquisitions were accounted for as business combinations under the acquisition method of accounting and were not considered significant on an individual basis or in the aggregate.

 

During 2011, the Company completed its acquisitions of TGLP, LN Ontario Concerts, Serviticket, Jeff Battaglia Management, LLC, Full Circle, LN-HS Concerts, T-Shirt Printers and BigChampagne. These acquisitions were accounted for as business combinations under the acquisition method of accounting and were not considered significant on an individual basis or in the aggregate.

 

Front Line

 

In the first quarter of 2011, the Company acquired all of the remaining equity interests of Front Line that it did not previously own in a series of transactions. As a result of these transactions, the Company was able to further simplify its operating structure and it has achieved or expects to achieve future savings through reduced cash taxes, noncontrolling interest distributions and other synergies.

 

Under the terms of the stock purchase agreement, the Company purchased all restricted and unrestricted shares of common stock of Front Line held by Irving Azoff and the Azoff Trust (collectively the "Azoff Sellers"), purchased all in-the-money options for common stock of Front Line held by the Azoff Sellers and purchased all shares of common stock of Front Line held by MSG. Irving Azoff was the Company's Executive Chairman and Chairman of the board of directors until his resignation as officer, director and employee of the Company on December 31, 2012. The Company also paid an amount equal to the 2010 dividend paid by Front Line to the Azoff Sellers and MSG, pro-rated for the period from January 1, 2011 through the closing date, and paid Mr. Azoff a contractually-owed tax gross-up associated with his restricted Front Line common stock and dividend. In total, under the stock purchase agreement, the Company paid $56.3 million in cash and $18.6 million in newly-issued shares of Live Nation common stock to the Azoff Sellers and $0.2 million in cash and $41.0 million in newly issued shares of Live Nation common stock to MSG. These shares were valued using the closing price of the Company's stock on the date of the transaction. Of the total shares of Live Nation stock issued, the Azoff Sellers received 1.8 million shares of common stock and MSG received 3.9 million shares of common stock.

 

As part of individual redemption agreements, the Company also purchased the remaining smaller holdings of outstanding Front Line restricted shares of common stock from other individuals for a total of $12.8 million in cash.

 

The shares purchased under all of these agreements had redemption features and, previous to these repurchases, the Azoff Sellers' and MSG's common shares and the Azoff Sellers' options were classified as redeemable noncontrolling interests and all of the remaining shares were classified as liabilities. All of these instruments were carried at their fair values and amounts paid as part of these agreements were recorded in the income statement to the extent they were in excess of the amount recorded on the balance sheet, with the exception of the unrestricted shares of common stock held by the Azoff Sellers and MSG which were accounted for as the acquisition of noncontrolling interests and the difference between the carrying value and settlement value was recorded in additional paid-in capital. Tax gross-up amounts paid were recorded in the income statement to the extent the amount paid exceeded the amount already accrued. As a result of the repurchases, the Company recorded $24.4 million in selling, general and administrative expenses in the first quarter of 2011, which is classified as stock-based compensation. Further, cash flows from financing activities reflects a $47.9 million use of cash and cash flows from operating activities reflects a $21.4 million use of cash as a result of these transactions. Total non-cash consideration was $59.6 million and is not included in the statement of cash flows.

 

Merger with Ticketmaster

 

Description of Transaction

 

In January 2010, Live Nation completed the merger of Ticketmaster with and into a wholly-owned subsidiary of Live Nation pursuant to the Merger Agreement. In connection with the Merger, each issued and outstanding share of Ticketmaster common stock was cancelled and converted into the right to receive 1.4743728 shares of Live Nation common stock plus cash in lieu of any fractional shares such that Ticketmaster stockholders received approximately 50.01% of the voting power of the combined company.

 

The combination of Live Nation and Ticketmaster was structured as a merger of equals. The Merger was accounted for as a business combination under the acquisition method of accounting in accordance with GAAP. Live Nation was the deemed "accounting acquirer" of Ticketmaster for accounting purposes.

 

 Actual and Pro Forma Impact of Acquisition

 

 

 

The Company has incurred a total of $70.0 million of acquisition transaction expenses to date relating to the Merger, of which $1.2 million, $16.9 million and $17.0 million are included in the results of operations for the years ended December 31, 2012, 2011 and 2010, respectively. For the years ended December 31, 2012 and 2011, these expenses were primarily the result of litigation costs relating to the Merger. The Company has incurred a total of $3.0 million of equity issuance costs to date related to the Merger which have been recorded as a charge to additional paid-in capital, as a reduction of the otherwise determined fair value of the equity issued.

 

In connection with the Merger, the Company incurred severance costs of $8.1 million, $1.2 million and $0.1 million as a component of selling, general and administrative expenses in its Ticketing, Artist Nation and Sponsorship & Advertising segments, respectively, and $4.7 million as a component of corporate expenses for the year ended December 31, 2010. As of December 31, 2012 and 2011, the accrual balance for the Merger restructuring was $0.1 million and $0.4 million, respectively. The Company did not incur additional severance costs in 2012 or 2011.