Live Nation Expanding Into Russia
Live Nation Expanding Into Russia

Since Live Nation has bid on Warner Music Group's recorded music division, it's worth asking what the financial statements of a combined company would look like. Adding the revenue is easy - Warner breaks out revenue by division. But Warner does not split its assets between recorded music and music publishing.

The two companies' combined revenue would have been $7.4 billion in 2010. In calendar year 2010, Warner's recorded music division had revenue of $2.35 billion while Live Nation had revenue of $5.06 billion. But the companies' revenues are headed in the opposite direction. Warner's recorded music revenue declining - -down 14% in the fourth quarter. Live Nation is primed for a rebound after a tough 2010 during which concerts were down 7.2% and ticketing dropped 12.5%.

And how much cash would Warner add? In fiscal 2010 (the 12 months ended September 30, 2010) Warner's free cash flow was $65 million. But that's for the entire company. As for the recorded music segment, it had operating income of $102 million in fiscal 2010. Add back $177 million in amortization expense (related to the company's many intangible assets) and you've got $279 million. But a big chunk of Warner's $190 million of interest expense is attached to recorded music. Take half that number, for example, and you're left with $184 million, from which items like cash taxes and capital expenditures are taken. As a point of comparison, Live Nation had adjusted operating income of $363 million and free cash flow of $138 million in calendar 2010.

Adding Warner to Live Nation would save anywhere from millions to a few tens of millions of dollars per year. Some executives and back office positions would be eliminated, and possibly some redundant merchandise and ecommerce operations. Keep in mind that Live Nation estimates it is saving $30 million a year after its merger with Ticketmaster, and that most of those redundancies existed because Live Nation had its own ticketing division.

Adding their balance sheets is not as easy as Warner's assets cover both recorded music and music publishing. As of December 31, 2010, Warner had total assets of $3.6 billion and long term debt of $1.94 billion. On the same date, Live Nation had total assets of $5.2 billion and $1.67 billion of long-term debt.