On Friday, the deal between
) and Universal Music Group (UMG) received approval from the
European Union (EU), after Vivendi's UMG agreed to sell the global
rights of British Music Company, EMI Group Ltd.'s most important
record labels and catalogues. Under the terms of the deal, Citi
traded EMI's recorded music division to UMG.
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,
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. It also
includes Universal brands Sanctuary, Co-Op Music Ltd, King Island
Roxystar, MPS Records, its share in Jazzland and Universal's Greek
This sale of assets would account for about 30% of EMI's global
revenue of $1.6 billion, including $450 million in Europe annually.
Prospective buyers for EMI assets include Warner Music Group, BMG,
the music publishing joint venture between German media group,
Kravis Roberts & Co.
), along with Richard Branson, founder of Virgin Records, and Sony
Moreover, the Universal-EMI deal got the U.S. Federal Trade
Commission's (FTC) approval without any conditions, owing to the
differences between the U.S. and European markets. Further,
regulators in Canada, Japan and New Zealand have already given
their consent to the transaction. Therefore, now the companies can
move ahead with the closure of the deal.
The sale includes one-third of EMI's assets. Lucian Grainge,
chairman and chief executive of UMG, aims at integration,
rebuilding of ties with entrepreneurs, creative artists and music
professionals with a considerable increase in investment. Moreover,
he targets to achieve savings of 100 million pounds ($163 million)
by combining the two companies.
However, EU expects Universal to ensure that competition in the
music industry is conserved and consumers in Europe continue to
enjoy all its benefits. The combined entity-Universal-EMI will have
a market share below 40% in Europe after the sale of asset is
completed. Additionally, EU had advised UMG to avoid favorable
terms for any new digital music deals in Europe for 10 years.
The Goldman Sachs Group, Inc.
) and Bank of America Merrill Lynch, a division of
Bank of America Corporation
), acted as advisors for Vivendi on the divestments.
In November 2011, Citigroup divided EMI and sold it for $4.1
billion. 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). 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 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 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
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
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.
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