One of a Kind...Live Nation Lives Large
By Russ Banham
Willard is also in charge of the finances of the 128 venues that Live Nation owns or operates as a concert promoter, such as the House of Blues franchise, the Fillmore brand and the Hollywood Palladium.
If only that was the extent of her job. She also must manage the financials related to the company’s 250 contracted entertainers, such as the Eagles, Jimmy Buffett and Christina Aguilera. Then there are artists like Madonna, Jay-Z and U2 that Live Nation does not manage but holds long-term contracts with in relation to their music properties. In the case of U2, the company signed a 12-year deal worth a reported $100 million to sponsor the band’s concerts, control related merchandise and market other rights such as fan sites and premium ticket packages.
Each of Live Nation’s 11,000 venue clients requires its own profit and loss statement, and each has a box office, which means oodles of cash that has to be accounted for and transported to hundreds of banks around the world. Just imagine 50 million people each year lining up to buy tickets using a wide range of currencies. On top of it all, Willard is in a business—entertainment—known for its outsized personalities. Live Nation’s chairman is Irving Azoff, the personal manager of Aguilera and other artists before becoming CEO of Front Line Management and then Ticketmaster. As the Wall Street Journal reported, Azoff “has long been known in the music industry for his short fuse.”
He’s also known for speaking his mind without necessarily conferring with people back at the store. In June, for instance, Azoff and John Malone, chairman of Liberty Media, Live Nation’s biggest shareholder, leaked to the press that they were thinking about taking the company private given the previous year’s concert slump and the usual post-integration blues following a major merger. But as Willard says, “Internally there have not been any official talks about privatization.”
Certainly, this is not a job for the fainthearted. Asked what she does in her off hours, Willard, an executive known for her razor wit, replies, “You mean I’m supposed to leave the office?”
In truth, she is married and has a yellow Labrador retriever that demands what little remains of her time once she gets home. The job does come with benefits beyond the usual, however—free tickets to enough concerts to deafen a teenager. Her personal favorites are U2, Madonna, Paul McCartney and Adele, and she confesses a recent crush on country performer Jason Aldean, the crooner behind “Dirt Road Anthem.”
Willard’s own road to success began in 1998, when she joined what was then SFX Entertainment, founded the previous year. It was acquired in 2000 by Clear Channel, which rebranded it Clear Channel Entertainment prior to spinning it off as a public company called Live Nation in 2005. At the time, the music industry was in free fall as it transformed from a business in which artists made money through sales of recordings to one in which concerts currently account for 80% of their earnings by Willard’s estimate. Record stores were closing across America as the public illegally shared songs or bought them for a dollar a pop online. Live Nation had found its niche.
Having lured major artists like Jay-Z away from their longstanding record labels in mega-million-dollar deals, the concert promoter-slash-ticket seller is so unique that some artists like Bruce Springsteen accuse it of being a near-monopoly. That didn’t stop the Department of Justice from approving the Live Nation-Ticketmaster merger in January 2010. After a year of twists and turns, Justice gave the thumbs up, so long as Live Nation divested Ticketmaster’s Paciolan ticketing operation and licensed its ticketing software to its closest competitor, AEG.
After acquiring Ticketmaster, Live Nation emerged as the world’s event-ticketing leader; one of the top five e-commerce sites on the planet, with more than 26 million unique visitors each month; the No. 1 artist management company; and the leading provider of entertainment marketing solutions that enable more than 800 advertisers to arrest the eyeballs of the more 200 million consumers that Live Nation delivers each year through its live event and digital platforms. Last year the Los Angeles-based company reported $5.1 billion in revenues and a workforce of 6,200.
Riding herd on this wide-ranging behemoth from a finance standpoint is Willard, assisted by “hundreds of accountants” around the world, she says, all of them full-time, salaried positions. “In a post-Sarbanes-Oxley world, we’re fully compliant, but it does take a lot of control processes to make it comfortable for me and Michael [Rapino, Live Nation’s CEO] to sign off on the financials,” she acknowledges.
Indeed, there are no comparable companies Willard can use to benchmark Live Nation’s performance. “American Airlines at least has United to look at, but we have no one,” she explains. “So we make sure we have more information in our hands than other public companies might have, just to be sure we can be as clear as possible. Fortunately, I took this job a long time ago and have grown up with it.”
Of the more than 200 acquisitions whose financial aspects Willard has overseen since coming on board, none were like Ticketmaster. As soon as the deal was announced, angry fans, artists and politicians weighed in with stern opposition. “This merger would give a giant, new entity unrivaled power over concert-goers and the prices they pay,” Sen. Charles Schumer (D-N.Y.) warned DealBook. “It must be viewed skeptically and scrutinized with a fine-toothed comb.”
Live Nation fired back, arguing that consumers would benefit because the combined entity would make it easier for ticket buyers to pick the seats they wanted online, thereby bypassing the “sticker shock” caused when ticket-handling fees are tacked on to the admission price. In testimony before a Senate Judiciary Subcommittee, Azoff disputed allegations of antitrust violations. In this era of technological innovation, he argued that Ticketmaster confronted greater competition from new ticketing software developed by the venues themselves to sidestep Ticketmaster.
Live Nation had just tapped technology to create its own ticketing business. “We had a real need to know who our customer was, and Ticketmaster, as our data provider, didn’t share that information,” Willard notes. “That’s why in 2008 we decided to start our own ticketing company, which we successfully launched the following year. That opened the door to useful conversations with Ticketmaster.”
Whether the merger would pass muster was a roll of the dice, with legal observers giving it a 50-50 chance of prevailing. Willard says the company didn’t know until two weeks before the acquisition officially closed that it was a fait accompli. “There was a lot of frustration and pain, but once we had the green light, we closed the transaction in five days,” she says.
The fast close was a testament to Willard’s copious due diligence in preparation. Each company’s functional heads and senior leaders were aligned with their counterparts to work through the details of what the combined company might look like. When the deal was given the thumbs up, all the documentation was in place and the integration moved forward without a hitch. “Planning aforethought made a huge difference,” Willard says, noting that within nine months Ticketmaster was running on Live Nation’s Oracle ERP system.
She makes it sound too easy. In fact, the companies were two very different businesses with not much overlap. And this was a very, very big deal—the first major merger to come before the Obama administration, at a time when the president was under the gun for bailing out big financial institutions. In addition to the Justice Department’s review, the Securities and Exchange Commission put the proposed transaction under the microscope. “We knew since this was a merger of equals that we would get a lot of SEC review,” Willard concedes.
From a regulatory standpoint, one of the companies had to be the acquirer. “We put more disclosures in our filing than a routine SEC filing,” Willard says. “We were cutting new teeth getting them what they wanted, developing some very interesting matrices that we put in the merger document.”
It was a ton of work, accompanied by additional anxiety because neither Willard nor the CFO at Ticketmaster knew which one would fill the position once the deal closed.
CEO Rapino gives Willard high marks for navigating the financial shoals of the difficult merger. “Kathy was instrumental in guiding our global financial processes and contributing to our strategy during a period of exceptional change and dramatic growth,” Rapino says. “She was a pivotal part of the planning and ultimate integration of our divisions following our merger with Ticketmaster. It’s safe to say that no other financial executive has the depth of Kathy’s experience and insight into the live entertainment industry.”
Once the two companies were one, the combined organization needed to refinance both companies’ debt obligations so it could make one public filing, rather than two. Willard worked with the company’s bankers and finance group to make sure that they were ready to move forward when the time was right.
Live Nation entered into a new $1.2 billion credit facility to replace the existing credit facilities, and also did a $250 million private offering of eight-year notes. “It actually turned out to be fortunate from a timing standpoint,” Willard says. “There was about a one-week window where the market opened up and we could get the entire credit facility refinanced at a good rate.
“We combined the debt and were oversubscribed, in fact,” she adds. “It was a huge win in terms of reducing the filing requirements, and it also allowed us to consolidate for tax purposes. Better to be lucky than good sometimes.”
Luck has nothing to do with it, says Colin Ryan, managing director in Goldman Sachs’ San Francisco-based technology, media and telecom practice. Ryan assisted Willard with the Ticketmaster acquisition, the recent divestitures and refinancing, and even the spin-off back in 2005 that gave birth to Live Nation.
“She was a principal actor in that spin-off, which was a very complex transaction, involving the creation of a public company,” Ryan says. “From there, she pruned the portfolio, selling off the non-core motor sports business and theater division, and went all the way through the Ticketmaster merger, right in the thick of the recession. There couldn’t have been a worse time to try to do a deal. Then, she pulled off a complex financing structure that managed to keep both companies’ capital structures intact. These are not easy things to do. Kathy is a very accomplished CFO. She’s also one smart cookie who is always up for having fun while in the trenches.”
Willard often is asked to make decisions beyond the purview of most big-league CFOs. “We’re a global company involved with the world’s greatest entertainers, so we get some unusual requests,” she says. “For instance, there might be a concert in a small country and I’ll get word that the king wants a handful of tickets—the best seats, of course. We have to ensure that we are giving him tickets just because he's the king, and we are not receiving cheaper police services in return, for example. After all, tickets are a commodity and have to be accounted for."
Obviously, Willard loves what she does—why else take on so much work? “I was sitting back recently at the Rose Bowl with 96,000 other people watching U2 perform,” she says. “I was there early and was just amazed at how all these people came into the venue so smoothly, sat down and then shared a communal experience. I had such an appreciation for all the people I work with every day. I thought, ‘My company does this.’”
Not so bad, after all.
Confidence Building...Siemens Takes a Leading Role
By Rebecca Brace
“It is important that all over the world CFOs, CEOs and other industrial leaders go out and provide encouragement to employees as well as to the global society. Politicians and many governments in Europe—and also, I believe, in the U.S.—are just not able to provide the confidence it takes that the economy will resume again and trust is being provided. We need to take on that leadership because we can make it happen.”
Siemens, which in 2010 reported revenues of almost 76 billion euros ($100.7 billion) and 405,000 employees, is well-positioned to take on such a role. Having overcome a major corruption scandal in 2006 that still lingers in U.S. courts, the electrical engineering giant is accustomed to facing problems head on. Siemens replaced its CEO in 2007 and the same year launched the Fit For 2010 program, which Kaeser says was effectively a change management program.
“The reason why the compliance crisis has been a blessing after all is that it was the catalyst for fundamental changes in how the company had been operating—cultural changes as well as significant changes to internal controls, the way in which we go to market and how we have been setting up our company,” he says.
Meanwhile, the company introduced a financial operating model called One Siemens that focuses on capital efficiency. “This replaces all the programs which the company has been doing over the last two decades with one operating model, which is designed on the basis of our performance against competitors,” says Kaeser. “It also provides capital structures for the company based on peak-to-trough profitability for each and every sector we are active in. Since fiscal 2011 we have managed the company in a very transparent way—all the stakeholders know what our model looks like, how we report and how we measure performance.”
Bolstered by these changes, Siemens was in a better position to weather future crises, and Kaeser says that the company was ahead of the curve in forecasting the issues caused by the European debt crisis. Among other things, the company reduced its capital spending and introduced more flexibility into its operating models, including how EBITDA target bands are set.
While Kaeser says CFOs have a part to play in restoring confidence in the global economy, he doesn’t think the role of finance chiefs is changing and becoming more strategic. First and foremost, he believes in getting the job done.
“CFOs are better off staying where they are,” he says. “If it comes to 100% financial integrity, they’d better be up to speed on risk management and they’d better know their numbers inside out and backwards. If they still have time after all of that, they can participate in the icing of the cake of entrepreneurial leadership, which is also to co-lead the company—but only in that order.”
Among Kaeser’s notable achievements was the establishment of Siemens Bank, part of the wider stable of Siemens Financial Services (SFS) companies. He applied for a banking license in 2009 and won approval from the German Financial Supervisory Authority in 2010. Located in Munich, Siemens Bank focuses on providing the company’s customers with loans for project and investment financing in Germany—although cross-border activities are planned in the future.
“Through Siemens Bank, we can help financing, and accelerate and act as a catalyst for big industrial projects,” Kaeser says. “We can do liquidity management with the European Central Bank and we can do repo management with the Deutsche Bundesbank. We are a fully fledged infrastructure financial institution which can help push and serve the needs of the business. These are massive and powerful tools that most of our competitors don’t have.”
A small number of companies have their own bank, but Siemens uses “that financial asset management professionally to first and foremost serve the industrial business, and not make it a purpose on its own,” Kaeser says. “That’s the interesting and important recipe—that you develop a powerful financial arm, but that arm doesn’t go out and take the risks that the banks and insurers have been taking. The key is to take all the tools you’ve got as a financial institution and apply those primarily to serving the industrial business.”
As for the obstacles currently looming, Kaeser says the negative effect the European debt crisis could have on the global economy has been heavily overstated. For global companies, he points out, geographical boundaries need not apply. “Greece will always be in Greece—they cannot move to Brazil, or to China or India,” he says. “But we as a global company at any given point in time can reallocate our resources elsewhere in the world. This is a very important differentiation for any global company with a decent footprint—that they can see and access the opportunities that the whole planet brings about.”
Those are certainly opportunities that Siemens will be looking to exploit in the coming year. Kaeser says the biggest growth potential is not to be found in the BRICs—Brazil, Russia, India and China—but in the second-tier emerging markets known as the CIVETS: Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa. In addition to putting local R&D resources in place, the company has introduced academies in some of those markets to train local college graduates in the science, technology, engineering and mathematics skills required for Siemens jobs.
Operating in emerging markets is not without its challenges, but as Kaeser points out, Siemens has long had a presence in many of these countries—for over 100 years in Egypt, Indonesia, Turkey and South Africa and over 50 years in Vietnam. “We have an established brand in those countries and people know that Siemens is a global company which has a lot of expertise in how to build out those systems.”
Meanwhile, the company launched a new infrastructure and cities division in October, another significant milestone. This business will focus not just on addressing the infrastructure needs of fast-growing urban environments but on helping cities in developed economies reduce their infrastructure costs while still providing better services. “No one in the world has that setup,” he says. “That’s what makes me very excited about it.”
This initiative could also mean a bigger role for Siemens Financial Services. “The [infrastructure and cities] sector aims to use SFS more actively going forward to facilitate business, for example by pre-financing energy savings from efficiency investments or advice and contribute to public-private joint infrastructure financing,” Andreas Willi, head of European capital goods equity research at J.P. Morgan, said in a research note. “To date, SFS was mainly used in Transport and [Siemens Building Technologies] but will now be expanded into other areas with asset growth expected to be higher than overall sales growth, increasing the share of SFS. We see this as a competitive advantage at a time of tight fiscal budgets and de-leveraging of banks and Siemens may gain share against competitors without in-house Financial Services.”
Despite his optimism about the economy, Kaeser sees difficulties ahead. “There is a lot of financial turmoil still coming. The banks certainly will have a challenge to get all those imposed equity percentages into their balance sheets,” he says. “And sooner or later, if this debt crisis and the governments push the banks to their limits, that will inevitably result in a fundamental credit crunch and a significant challenge for refinancing companies which do not have access to the global bond markets.”
Asked about his plans for the coming year, Kaeser is circumspect: “Whatever you do strategically, it’s better to do it first and then talk about it later than the other way round.”
Nevertheless, he is focused on the role Siemens has to play in navigating the crisis: “Our compliance crisis was not so much about the money which we needed to pay but about keeping our license to do business. In order to get that right, you have to get the best people you can potentially have and then get them motivated.
“This is now what we need to do with the European debt crisis: Show the way, and then people will listen and participate and we will start the global wheel spinning again,” Kaeser says. “We’ve been here for 165 years, we’ve mastered all sorts of crises—and we will also be mastering the next one.”
Flight to Resilience...EADS Embraces Visibility
By Rebecca Brace
When contemplating the challenges posed by the eurozone debt crisis, Hans Peter Ring, CFO of EADS, draws comfort from the aerospace and defense giant’s performance since 2008. “A major achievement of the last few years is that the company proved to be resilient throughout the financial crisis,” Ring says. “We anticipated the downturn before the financial crisis started and tried to prepare ourselves as well as we could. As a result, we went through the crisis in such a way that we didn’t feel the crisis internally—we didn’t suffer on our top line and we didn’t suffer in terms of deliveries. That was the first time that we’ve achieved that during a downturn.”
Ring should know—he has had a long career at EADS. He joined a predecessor company, Dasa, in 1990 after 13 years at German aerospace company MBB. At EADS, which stands for European Aeronautic Defence and Space Co., Ring has held the CFO post since 2002 and also served as CFO for Airbus, the company’s aircraft manufacturing unit, from 2007 to 2008.
While EADS was formed in 2000 from the merger of French, German and Spanish businesses, the company is registered in the Netherlands and comprises four divisions: Airbus; Astrium, a space company; Cassidian, which provides solutions for the armed forces and civil security; and Eurocopter, a helicopter manufacturer. Ring is based in the company’s German headquarters near Munich.
“Hans Peter Ring is probably one of the most popular and credible CFOs from an investor’s perspective that I’ve run across in my 24 years as a sell-side analyst,” observes Sandy Morris, an aerospace analyst in the global banking and markets unit of RBS.
EADS’ positive experience during the financial crisis was no happy accident but the result of carefully executed strategy. After implementing a new governance model in 2007—which saw the company move from two CEOs and two chairmen to one CEO and one chairman—Airbus, the company’s leading business, initiated a process known as “watch tower.” This strategy enabled the company to get a real-time view of its customers and suppliers, so it could anticipate potential risks in time to take mitigating actions.
“This was one of the key improvement steps we achieved after having implemented the new governance,” says Ring. “At the time I held the CFO role, not only for EADS but also for Airbus, in order to foster the integration of teams. Holding this double function was not sustainable for a long period of time, but it helped to be involved in all subjects, and all the important processes on the Airbus side of the business, which are among the most important processes in the group.
“Other teams, together with the finance function of Airbus and us at EADS, developed this new process, which was so effective throughout the last crisis,” he adds. “It includes things like overbooking ourselves on delivery positions, which we’ve not done before, in anticipation there might be a challenge arising.” Booking more deliveries than are actually required provides more flexibility to adapt to changing circumstances. “It basically is about micromanaging the delivery slots for the next two years, customer by customer, at a very high level in a risk management committee,” says Ring.
In practical terms, this process means customers’ delivery slots are proactively managed and adjusted where necessary. “Where difficulties with customers are anticipated, the delivery slots are postponed,” explains Ring. “Others are advanced. At a certain point in time our commercial team stopped counting these shifts of aircraft deliveries—this was at some 600. So it’s a really important process and a significant achievement.”
Ring describes the company’s performance since 2008 as a “unique European success story” and indeed EADS’ track record speaks for itself. Between 2009 and 2010 the company grew 7%, and expects 4% growth for 2011. Its net cash position has grown from 9.8 billion euros ($12.8 billion) at the end of 2009 to more than 11 billion euros ($14.6 billion) today. And record orders in 2011, driven predominantly by Airbus, put the company on course for sales surpassing its last record year in 2007.
Meanwhile, the ongoing European crisis provides a new opportunity for the tried and tested watch tower process to prove its worth and as such Ring views it as a vital tool in the company’s risk management arsenal. “We have developed a strong crisis-proven process, and the watch tower is consistently being applied, also given recent developments in the macro environment,” he says. “In fact, we have widened the program’s scope, which now also entails a close monitoring of our supplier landscape.”
Besides high volatility in the markets and the uncertain future of the euro, EADS, which turned over 45.8 billion euros ($60.7 billion) in 2010 and employs 122,000, also faces challenges posed by a number of governments’ adoption of austerity measures that will impact the countries’ defense budgets.
Ring says these issues are not insurmountable. “The military business in our home countries and also in the U.S. is not growing and in some countries, in real terms, is even decreasing,” says Ring. “That needs to be managed. Linked to that, what we want to do is go to the export markets to globalize the government businesses, particularly the defense, security and space businesses, in order to compensate for the shortfalls we may have in our home markets. We have already had quite some success in the areas of security business and border protection.”
While the economic climate is inevitably a major concern, there’s more to being a CFO than crisis management. “Of the contributions I could make to the company’s achievements, the most important is ensuring that I am not alone,” says Ring. “I have built a strong finance team across the divisions and the headquarters, which is shaping the company beyond the finance function.
“We were instrumental in changing the target-setting process and philosophy within the company in the last one to two years,” he notes. “Another example is that we launched a group-wide initiative on business partnering, bringing finance people closer to the business.”
While the day-to-day responsibilities of the CFO continue to focus on areas such as controlling treasury and refinancing, Ring sees partnering with the business becoming increasingly important.
“It’s about making sure that the requirements we have from the financial and risk management side of the business are really considered in the decision making throughout the whole operative chain—starting from business development and including bidding, contracting and executing processes,” he says. “Here the finance department plays a stronger, more strategic role today than it did a few years ago.”
Another topic of growing importance is customer financing. “This means ensuring that the financing of equipment, particularly aircraft equipment for airlines, is somewhat secured and supported,” Ring says. “That doesn’t necessarily mean we have to do that with our own cash, but we support it with export credit guarantees from the government. We want to further evolve the framework we have today with export credit.”
Nevertheless, at this point in time the challenges of the markets loom large and activities like hedging currency risk are high on the agenda for 2012. Managing the company’s 11 billion euros ($14.3 billion) of cash is another challenge, and the focus there is on de-risking the investment portfolio by concentrating on AAA-rated governments, strengthening the corporate bond portfolio and reducing investments in financial institutions.
The size of the portfolio does of course give the company a significant safety net, says RBS’s Morris.“I’d venture that with around 11 billion euros of net cash, EADS is a better position to deal with the challenging economic backdrop that appears to lie ahead than most companies.”
As far as the future of the euro is concerned, Ring points out that it is difficult to get a straight answer from banks due to the widespread uncertainty. Nevertheless, he remains optimistic. “The euro is more than a European symbol: It’s the most ambitious and successful political and economic project,” Ring says. “It is worthwhile to fight for the euro—Europe needs it.”
Ring is quietly confident that EADS is well positioned to overcome whatever obstacles might arise. That said, he is not resting on his laurels and is keeping a watchful eye on developments in the market.
“Based on our backlog and our strong cash position, we think we have a good basis to navigate through another crisis if one should come,” Ring says. “For the time being, we stay vigilant.”
Last year’s CFOs to Watch were Bill Wheeler of MetLife, Kathleen Quirk of Freeport-McMoran and Curt Espeland of Eastman Chemical.