On Friday,
Citigroup Inc.
(
C
) completed the sale of EMI Group Ltd.'s recorded music division,
EMI Music, to Vivendi's Universal Music Group (UMG) for $1.9
billion (£1.2 billion). The deal between Citi and UMG, which was
entered in November 2011, received approval from the European Union
(EU) in September, after Vivendi's UMG agreed to sell the global
rights of EMI's most important record labels and catalogues.
Citi's Corporate and Investment Bank acted as advisors to Citi and
EMI Group. Moreover, Clifford Chance LLP, Shearman & Sterling
LLP and Freshfields Bruckhaus Deringer LLP presided as legal
advisors for Citi and EMI.
Background
UMG agreed with the European regulators to sell certain assets like
Parlophone, one of EMI's most valued possessions with star acts
such as Coldplay and Queen, in order to abide by the antitrust law.
The assets-sale is to be completed within six months.
The vending of assets also included the divestment of the Mute,
home to Depeche Mode, Ensign and Chrysalis labels, along with EMI
Classics, Virgin Classics and EMI units in France, Spain, Denmark,
Belgium, the Czech Republic, Poland, Portugal, Sweden and Norway.
Additionally, it includes Universal brands Sanctuary, Co-Op Music
Ltd, King Island Roxystar, MPS Records, its share in Jazzland and
Universal's Greek unit.
Moreover, the Universal-EMI deal got the U.S. Federal Trade
Commission's (FTC) approval without any conditions. Further,
regulators in Canada, Japan and New Zealand have already given
their consent to the transaction.
The Other Side of the Coin
In November 2011, Citigroup divided EMI and vended it into two
parts. Along with EMI's sale of recorded music division to UMG, the
publishing division was sold to a group of investors led by Sony
Corporation of America (SCA) - a U.S. subsidiary of
Sony Corporation
(
SNE
) - for $2.2 billion.
The sale of EMI's recorded music and publishing assets is an
achievement for Citigroup. In 2007, Guy Hands and his private
equity team at Terra Firma offered $6.7 billion as the bidding
amount for EMI but failed to meet the loan payments provided by
Citigroup to finance the deal. Therefore, Citigroup finally took
over EMI in February and since then has been conducting auctions to
sell this British music company.
In July 2012, the FTC approved the deal between Sony and EMI Music
Publishing. The agreement, through which Sony would buy EMI from
Citigroup, received the U.S. regulators' nod without any
restrictions.
However, the deal received confirmation from the European Union in
April on one condition - it would have to vend the worldwide
publishing rights of artists, including Robbie Williams and Lenny
Kravitz. To comply with the antitrust law, the association agreed
with the European regulators to sell certain assets.
After-Effects of the Deal
Upon closure of the deal, Sony/ATV Music Publishing will manage EMI
Music Publishing. Sony/ATV Music Publishing is a joint venture
between SNE and the Michael Jackson estate, with 38% holding in the
consortium.
EMI Music Publishing, a leading popular music publisher, has a huge
collection of musical compositions and a big list of successful
songwriters. The business represents and controls varied catalogs
of over 1.3 million music copyrights covering all generations,
periods and regions of the world. Therefore, Sony/ATV aims to
fabricate a strong platform to sustain significant growth and earn
revenues from the EMI catalog.
According to Rob Wiesenthal, the Chief Financial Officer of Sony
Corporation of America, this deal strengthens the company's plan to
build the operational breadth of Sony/ATV Music Publishing with the
proficiency and experience of Marty Bandier, Chairman and CEO of
Sony/ATV. Following the acquisition, the growth of digital music
services will enable the songwriters' music to reach a wider
audience.
Conclusion
After evaluating the pros and cons, we believe this two-part sale
deal will maximize the value of EMI for Citi, while enabling the
latter to recoup its investments. Moreover, under the current
fundamental pressure on the banking sector, such approvals will aid
Citi to stand out in the market.
Currently, Citi retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term 'Neutral' recommendation on the stock.
CITIGROUP INC (C): Free Stock Analysis Report
SONY CORP ADR (SNE): Free Stock Analysis Report
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