In order to receive confirmation of the Citigroup-UMG Deal from
the European Union (EU), Vivendi's Universal Music Group (UMG) has
come up with the offer of selling global rights to some of EMI
Group Ltd.'s, a British music company, most important record labels
and catalogues, Reuters reported on Monday. Under the terms of the
) traded EMI's recorded music division to UMG.
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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 vending of assets also included the divestment of
the Mute, Ensign and Chrysalis labels, along with EMI Classics,
Virgin Classics and EMI units in France, Belgium, the Czech
Republic, Poland, Portugal, Sweden and Norway. It also includes
Universal brands Sanctuary, Co-Op and Universal's Greek unit.
According to the source, prospective buyers for EMI assets include
BMG, the music publishing joint venture between German media group
Kohlberg Kravis Roberts & Co.
), a private-equity firm along with Virgin Records founder Richard
Branson and Sony Music.
The EU's decision is expected to come in the later part of
September. A Universal-EMI deal also awaits the U.S. Federal Trade
Commission (FTC) approval, though regulators in Canada, Japan and
New Zealand have already given their consent to the transaction.
In November 2011, Citigroup divided EMI and sold it for $4.1
billion. EMI's music and publishing businesses were separated and
sold in two parts.
Citigroup traded EMI's recorded music division to UMG, the world's
largest record company in terms of market share, for $1.9 billion
(£1.2 billion). UMG still awaits regulatory approvals. On the other
hand, the publishing division was sold to a group of investors led
by Sony Corporation of America (SCA) - a U.S. subsidiary of
) for $2.2 billion.
The group of investors acquiring EMI Music Publishing along with
Sony included the Estate of Michael Jackson, Mubadala Development
Company PJSC, Jynwel Capital Limited,
the Blackstone Group
) GSO Capital Partners LP and billionaire David Geffen.
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
However, the deal received confirmation from the European Union in
April on one condition - it has to vend the worldwide publishing
rights of its artists. To comply with the antitrust law, the
association agreed with the European regulators to sell certain
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
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, CFO 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.
After evaluating all the pros and cons, we believe that this
two-part sale deal will maximize the value of EMI for Citigroup
while enabling the U.S. Bank to recoup its investments. Moreover,
under the current fundamental pressure on the banking sector, such
approvals will aid Citigroup to stand out in the market.
Currently, Citigroup retains a Zacks #3 Rank, which translates into
a short-term Hold rating. Considering the fundamentals, we also
maintain our long-term Neutral recommendation on the stock.