Oct. 8 (Bloomberg) -- U.S. antitrust enforcers are concerned that a merger of Ticketmaster Entertainment Inc. and Live Nation Inc. may reduce competition for tickets to live events at large venues, said a person familiar with the matter.

The Justice Department is likely to decide within two months whether to oppose the merger, said the person, who spoke on condition of anonymity. The deal, announced in February, would unite the largest ticketing company with the biggest venue operator, creating an entity with $6 billion in annual sales.

Shares of both companies fell, evidence of investor concern the deal may fall apart, said David Joyce, an analyst with Miller Tabak & Co. in New York. Those worries may be premature, he said. Earlier today, the U.K.’s antitrust regulator issued a preliminary ruling challenging the combination, while saying remedies were possible.

“The official final decision has not been made,” said Joyce, who rates Live Nation “buy” and doesn’t follow Ticketmaster. “There is still room for something to happen.”

Ticketmaster dropped 56 cents, or 4.5 percent, to $11.90 at 4 p.m. New York time in Nasdaq Stock Market trading. Live Nation lost 48 cents, or 5.6 percent, to $8.14 on the New York Stock Exchange.

Gina Talamona, a Justice Department spokeswoman, declined to comment on the merger. Live Nation spokesman John Vlautin didn’t return a call seeking comment. A Ticketmaster spokesman declined to comment.

Competition Impact

Following today’s ruling in the U.K., the companies released a statement defending the deal.

“We believe this merger will build a more efficient and effective company moving forward, and that working together we will be able to help achieve needed change that will strengthen a flagging music industry,” they said in the statement.

In London, the U.K. Competition Commission’s preliminary ruling said the deal may curb competition and “severely inhibit” the entry of German rival CTS Eventim AG into the U.K. market, according to a statement today.

The commission said it would consider possible remedies and responses from the companies before issuing a final report by Nov. 24. Potential solutions include divestiture of U.K. businesses by either Ticketmaster or Live Nation or other measures to ensure that CTS or another rival could act as the ticket agent for many of Live Nation’s events, the panel said.

Ticketmaster, based in West Hollywood, California, owns the world’s largest ticket-selling network and the biggest artist- management firm. Beverly Hills, California-based Live Nation, the largest concert promoter, operates the most venues and has exclusive deals with Madonna, U2 and Jay-Z.

Ticket Competition

Ticketmaster and Live Nation became competitors in ticketing this year. Live Nation introduced a ticketing platform with CTS on Jan. 1, when its contract with Ticketmaster expired.

“This is a transaction that raises significant concerns, and it will be difficult to resolve those concerns with any sort of remedy or divestiture,” Andre Barlow, an antitrust attorney with Doyle, Barlow & Mazard in Washington, said in an interview. “It comes down to whether the antitrust division is comfortable bringing a case to challenge the merger.”

Concert promoters who compete with Live Nation must use Ticketmaster at large venues. The ticket vendor has exclusive rights to sell admissions at locations including New York’s Madison Square Garden, said Gary Bongiovanni, editor of Pollstar, an industry publication. Promoters are concerned Live Nation, which already controls most U.S. amphitheaters, may gain an advantage at larger arenas, he said.

‘Neutral Body’

“Competing promoters are faced with having to use a competitor as their ticket vendor when they go in and rent a place like Madison Square Garden,” Bongiovanni said. “Before the merger it didn’t matter, because Ticketmaster was essentially a neutral body.”

The companies entered the deal expecting to give something up to win approval and ease regulators’ concerns, Joyce said.

“The initial headline makes the investors in these stocks nervous, but there is a potential way to read this at the second level,” Joyce said in an interview. “There is a discussion going on and there is talk of potential remedies.”

In February, Irving Azoff, Ticketmaster’s chief executive officer, said that for the right price he would sell the company’s online ticket-reselling unit, TicketsNow, after Bruce Springsteen fans accused the company of scalping concert tickets. At the time, Azoff was making the rounds of Congress defending the proposed merger.

In July, Senator Herb Kohl, a Wisconsin Democrat, and a bipartisan group of House members asked the Justice Department to determine whether the combination would lead to higher concert ticket prices or harm competition in the music industry.

Azoff and Live Nation Chief Executive Officer Michael Rapino have argued a combination would create a new model for the music business focused on live performances, where ticket sales have done well compared with compact discs.

-- With assistance from Matthew Campbell in London. Editors: Jim Rubin, Anthony Palazzo

To contact the reporter on this story: Justin Blum in Washington at jblum4@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

Last Updated: October 8, 2009 16:33 EDT