Universal, Sony/ATV to buy EMI for $4.1 billion

LOS ANGELES (AP) - November 11, 2011

The deals will open EMI's buyers, Universal Music and Sony/ATV, to regulatory scrutiny as they increase their dominance of the music industry.

Universal Music Group said Friday that it will pay 1.2 billion pounds ($1.9 billion) for the recording division, joining Universal artists including Lady Gaga and Eminem with EMI superstars such as David Guetta and Lady Antebellum.

A consortium led by Sony/ATV reached a separate deal to pay $2.2 billion for EMI's publishing division, according to a person familiar with the matter. That business is in charge of songwriting copyrights for such artists as Rihanna and Adele. The person wasn't authorized to speak publicly and spoke on condition of anonymity.

Sony/ATV, a joint venture between Sony Corp. and the Michael Jackson estate, is a 38 percent partner in the consortium. The other parties were not immediately known.

The two-part sale, if approved by regulators, would further increase Universal Music's dominance in recorded music and springboard Sony/ATV into the top spot as a music publisher, according to Impala, an association of European independent music companies that is against the deal.

The purchases would give Universal Music and Sony/ATV undue negotiating power over artists and distributors of music, even powerhouses such as Apple Inc.'s iTunes, Impala said.

Both deals are expected to be carefully reviewed in Europe, the U.S., Japan and Australia. Even if regulators approve, they could force the sale of key assets or attach other terms.

Helen Smith, Impala's executive chairwoman, noted that when Universal Music bought music publisher BMG in 2007, it had to sell some assets to get smaller.

"When you have players which are dominant, even if they take over small players in market share, that can have a serious impact on competition," she said.

Jean-Bernard Levy, CEO of Universal Music parent company Vivendi SA, told analysts on a conference call that he was "very confident" the deal would be approved in as little as 10 months.

In the United States, Universal is the top music producer with a 30 percent market share compared with EMI's 9 percent, according to Nielsen SoundScan. With a combined share of 39 percent, they would tower over Sony at 29 percent and Warner Music at 19 percent.

The deal leaves Citigroup, EMI's current owner, with liability for a pension plan worth about $600 million, a second person said. The person was also not authorized to speak publicly and spoke on condition of anonymity.

Citigroup had put EMI up for sale in June, four months after it foreclosed on private equity firm Terra Firma. Terra Firma bought EMI in 2007 in a $6.8 billion acquisition financed with debt from Citigroup, but it couldn't make enough money to keep up with the terms.

Vivendi believes it is swooping in to buy the troubled asset at an "inflection point" in the music industry, Levy said. Thanks to gains in digital track and album sales, overall U.S. album sales are up 5.2 percent at 360 million units so far this year, according to SoundScan. At this point last year, overall album sales had plunged 13 percent.

Vivendi expects to cut costs and save more than $150 million a year - making the deal profitable even if the music industry doesn't grow in the future. Vivendi expects the deal to boost its profits in the first year after regulatory approval.

Morningstar analyst Allan Nichols, who covers Vivendi, viewed the deal with trepidation on fears that the music industry could resume its decline and that regulators could reject it.

But antitrust regulators could be more lenient of big tie-ups when the music industry is struggling to recover from more than a decade of online piracy, he said.

Also, Vivendi is paying less per dollar of earnings than Access Industries' Len Blavatnik did when he took Warner Music Group Corp. private for $1.24 billion in July.

"The catalog is very impressive, and they didn't pay a whole lot," Nichols said.

In a move that may appease regulators in Europe and the U.S., Vivendi said it would sell 500 million euros ($680 million) worth of non-core assets, mostly minority stakes in companies that it did not disclose. Strategic bidders that lost out on the auction, such as Warner Music, are expected to vie for those assets.

Vivendi said that London-based EMI would find a safe home at a company headquartered not far away in Paris.

"For me, as an Englishman, EMI was the pre-eminent music company that I grew up with," Universal CEO Lucian Grainge said in a statement. "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."

Grainge said on the conference call that he would ensure the famous Beatles' recording studio, Abbey Road Studios, would remain open as a "symbol of British culture."

Universal released statements from bands in support, including from Coldplay manager Dave Holmes, who said "this can only be a positive for the artists and executives at EMI."

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