Universal Music has already announced that it will pay $1.9B for the recorded music operation. We’re told Sony’s teed up to disclose that it landed EMI’s music publishing business for $2.2B. The deals end a drawn-out process to decide the fate of a company whose hitmakers include The Beatles and Katy Perry. But the companies may face tough questioning from European antitrust officials, and possibly U.S. ones as well. Impala, which represents independent European music companies, said this week that deals with Universal and Sony — two of the industry’s largest companies — “would be the worst possible outcome of the EMI negotiations — for music, those who make it and those who want to access it.” Citigroup has made it clear to bidders that it expects to be paid no matter what; buyers would have to assume all the financial risks for any deal that’s blocked.
If the transactions go through, then it could mean big problems for Warner Music, which industrialist Len Blavatnik bought for $3.3B early this year. “Warner’s really small now” compared to Universal and Sony, says one long-time industry exec. “They’re the third port of call for every artist, and won’t have the same leverage with Walmart for shelf space.” The publishing deal with Sony also raises questions for BMG, which has been on an acquisition tear with financial support from private-equity firm Kohlberg Kravis & Roberts. BMG has wanted to build scale, and a deal with EMI — the No. 1 music publisher — would have capped that effort. Some industry players wonder whether KKR now will look to sell its interest in BMG.
EMI ran into trouble when its previous owner, Guy Hands’ Terra Firma Capital Partners, was unable to make payments on the $4.8B debt it took on at the height of the private-equity bubble to buy the music company.
Here’s the release from Universal’s parent Vivendi:
Paris, London, New York, Los Angeles, November 11, 2011 – Vivendi and its subsidiary, Universal Music Group (UMG), announced today that they have signed with Citigroup (“Citi”) a definitive agreement to purchase EMI’s recorded music division for a total consideration of £1.2bn representing 7 X EBITDA prior to synergies.
EMI Group is one of the world’s most prominent music companies, possessing a rich musical legacy. Its recorded music division, EMI Music, operates around the world and represents artists spanning all musical tastes and genres through record labels including Angel, Astralwerks, Blue Note, Capitol, Capitol Latin, Capitol Records Nashville, EMI Classics, EMI CMG, EMI Records, EMI Records Nashville, Manhattan, Parlophone, Virgin Classics and Virgin Records.
Jean-Bernard Lévy, CEO of Vivendi, stated: “We are very proud to welcome EMI into the Vivendi family. We all respect the labels within EMI as well as the artists and employees who contribute to its success. They will find within our Group a safe, long term home, headquartered in Europe.” He then added: “We plan to acquire EMI’s recorded music division on attractive terms, adhering to our principle of total financial discipline. We are confident that we will be able to create additional value for our shareholders thanks to our knowledge of the industry and our proven track record of successful integration. Lucian Grainge’s personal experience and heritage will be a major asset in making the combined entity a great success.”
Lucian Grainge, Chairman & CEO of Universal Music Group, added: “This is an 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. As a result, we will be better positioned to fully capitalize on the many new and exciting opportunities in the current marketplace, and also able to better serve our artists, songwriters and business partners, while offering fans even more choice.”
Stephen Volk, Chairman of the Board of EMI Group and Vice Chairman of Citigroup, added: “We believe that this transaction accomplishes Citi’s objective of maximizing the value of EMI, giving EMI Music a partner in Universal Music that appreciates EMI’s rich cultural legacy, its incredible stable of musical talent, and its employees who work so hard to deliver successful outcomes for the artists they represent. We are grateful to Roger Faxon, his management team and all of EMI’s staff for the continued success of this business during Citi’s ownership.”
The transaction has been approved both by the Management Board and the Supervisory Board of Vivendi. Closing of the agreement remains subject to a number of conditions, including approvals of regulatory authorities in the countries and continents concerned.
Vivendi will finance the transaction from its existing credit lines. Concurrently, Vivendi and UMG will also sell 500 million euros worth of non-core UMG assets.
Vivendi and UMG have been advised by Allen & Co. and SJ Berwin on this transaction. Citi Global Banking acted as financial advisor to Citi and EMI. Clifford Chance LLP, Shearman & Sterling LLP and Freshfields Bruckhaus Deringer LLP acted as legal advisors to Citi and EMI.