Universal Music buys EMI Recorded Music

Sony/ATV to nab publishing division for $2.2 bil

In a stunning turnabout, Vivendi and its subsidiary Universal Music Group announced early Friday that it had signed with Citigroup a definitive agreement to buy EMI’s recorded music division for approximately $1.9 billion (£1.2 billion). And, in another equally surprising development, Sony Corp announced that it is buying EMI’s music publishing division for $2.2 billion.

Pubbery is being acquired by an investor group comprising Sony Corp. of America (in conjunction with the estate of Michael Jackson), Mubadala Development Co., Jynwel Capital, the Blackstone Group’s GSO Capital Partners and David Geffen.

While current EMI CEO Roger Faxon had sought to deal the firm intact, a split-up of London-based EMI’s label and publishing interests among buyers was seen as inevitable in the closing days of Citigroup’s auction, given the current soft state of international credit markets.

The outcome was envisioned very differently by most observers.

During early stages of the protracted auction — which followed Citi’s seizure of the debt-wracked music company early this year — it was widely assumed that Access Industries, which bought Warner Music Group for $3.3 billion in May (Variety, May 7), would be the most aggressive bidder for EMI’s recorded music side.

Edgar Bronfman, Jr. — who had helmed the purchase of WMG from Time Warner for $2.6 billion in 2004 and was the key player in Access’ purchase of WMG — had long coveted EMI; as recently as 2006, the companies exchanged multibillion-dollar bids, both of which were rejected. This August, former WMG CEO Bronfman took the role of chairman to focus on the splicing of the two firms.

However, late in the EMI auction process, Access, headed by Russian petrochemical billionaire Len Blavatnik, backed away from the table after placing a bid reportedly in the realm of $1.5 billion-$1.6 billion.

Vivendi said it was financing the EMI purchase from its existing credit lines.

On the publishing front, BMG Rights Management — a joint venture of German media titan Bertelsmann and equity firm Kohlberg Kravis Roberts — was seen as the frontrunner for EMI’s publishing catalog of 1.3 million copyrights. For the last two years, the firm has aggressively acquired a host of publishers, including Bug Music, Chrysalis Music and Cherry Lane Music Publishing.

But Sony/ATV Music Publishing — a joint venture between Sony Corp. and the Michael Jackson estate — ultimately prevailed, and will manage EMI’s assets on behalf of the investor consortium. The company, which controls more than 750,000 copyrights (including evergreens by the Beatles and Bob Dylan), has been headed since 2007 by chairman-CEO Martin Bandier, who during 17 years at the top of EMI Music Publishing turned that operation into the leading pubbery.

Bandier said in a statement: “I am excited to be reunited with the incredible songs, writers and people of a company I helped build. Our track record at Sony/ATV over the past four years demonstrates our ability to build a strong platform that sustains significant growth. The opportunity represented by this transaction is both transformative for Sony/ATV and a truly special moment for me, personally.”

EMI’s publishing catalog includes songs by Arcade Fire, Beyonce, Alicia Keys, Brad Paisley, Drake, Jay-Z, Norah Jones, Pink, Rihanna and Usher.

Acquisition of EMI’s recorded music division — which includes contemporary stars Katy Perry, Coldplay and Lady Antebellum and heritage luminaries including the Beatles, Pink Floyd and the Beach Boys — further bolsters UMG’s status as the No. 1 label group.

According to 2010 year-end U.S. market share figures from Nielsen SoundScan, UMG led the field with 30.8%, while No. 4 firm EMI took nearly 10.2%. Last year, Sony Music Entertainment accounted for 28% of the market; WMG was third with 20%.

With the combined UMG-EMI toting up a commanding market share of around 40%, deal sets the regulatory bar fairly high. Vivendi’s and Sony’s announcements of the purchase notes that closing of the agreement is subject to various conditions, including the approval of regulatory bodies. European indie-label trade org IMPALA has already voiced opposition to the deal.

UMG chairman-CEO Lucian Grainge said in a statement: “This is a historic acquisition for UMG and an important step in preserving the legacy of EMI Music. For me, as an Englishman, EMI was the preeminent music company that I grew up with. Its artists and their music provided the soundtrack to my teenage years. Therefore, UMG is committed to both preserving EMI’s cultural heritage and artistic diversity and also investing in its artists and people to grow the company’s assets for the future.”

Though Citi had reportedly considered delaying the sale of EMI to avoid dealing the company in pieces, the bank’s decision to sell was finally mooted by a desire to offload a troublesome holding.

Citi took control of EMI in February after U.K.-based Terra Firma Equity Partners, which bought the company in 2007, was unable to meet its loan covenants (Variety, Feb. 2). Equity firm’s £4.2 billion purchase (£2.7 billion of which was funded by Citi) was widely viewed as one of the worst business deals in music industry history. Following the takeover, debt was written down by £2.2 billion.

In late 2010, Terra Firma — which had struggled to meet its debt payments in a collapsing music market — lost a lawsuit against Citi. Action alleged that Citi inflated the price of EMI by falsely claiming there were other suitors for the company (Variety, Dec. 5).Jill Goldsmith contributed to this report