Universal, Sony win dual bids to buy EMI Group

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Universal Music Group and Sony Corp. have reached agreements with Citigroup Inc. to buy EMI Group’s music business for a combined $4.1 billion, an 8% premium over Citigroup’s initial minimum asking price.

The dual transaction would split London-based EMI in two, with the company’s recorded music going to Universal for approximately $1.9 billion and the publishing division sold to Sony for $2.2 billion, the companies announced Friday morning. Citigroup in October had asked for a minimum of $1.9 billion for the recorded music business and $2.5 billion for EMI’s smaller but more profitable publishing business.

Among EMI’s roster of artists are Coldplay, Norah Jones, Katy Perry and Pink Floyd, to name just a few. In addition, its publishing catalog contains 1.4 million songs, including “New York New York,” “The James Bond Theme,” “Empire State of Mind,” “We Are the Champions,” “Wild Thing,” “Have Yourself a Merry Little Christmas.”

The deals are subject to approvals by antitrust regulators in both the U.S. and Europe. Universal is already the largest recorded music company in the world, with an estimated 27% of the global market, according to the International Federation of the Phonographic Industry. Adding EMI’s share of roughly 9% would put Universal at a comfortable distance relative to Sony, whose market share has approached, and at times, surpassed Universal’s with regard to recorded music.

The recorded music business is primarily concerned with selling records and breaking new artists, whereas music publishing collects royalties from music that is licensed for use in advertising, games, television shows and other commercial purposes.

For Sony, the agreement to buy EMI Publishing came at the eleventh hour, as financing for its $2.2-billion purchase came together in the last week or so via a network of partners that include Mubadala, an Abu Dhabi investment fund, Blackstone, Guggenheim Partners, UBS Investment Bank and several others. The offer narrowly edged out a $2.1 billion bid from BMG Chrysalis, a music publishing company owned by German media giant Bertelsmann and Kohlberg Kravis Roberts & Co.

Sony is considered an investor and partial owner in the deal, but will manage the business under its Sony ATV publishing business, which owns or administers the publishing rights to 750,000 songs, including the Beatles catalog.

The deal is a coup for Sony Chief Executive Howard Stringer, who has made music a priority for the company at a time when the industry has been ravaged by piracy and plummeting CD sales. In 2008, Stringer spent $1.2 billion to buy out Bertelsmann’s 50% share in a joint venture, Sony BMG.

For Universal, the purchase keeps EMI out of the hands of Warner Music Group, which would have gained enough market share to closely rival Universal and Sony.

In the end, the deal hinged upon a solution to EMI’s pension plan obligations to its 21,000 employees. Warner offered to assume the pension liability, but would pay about $1 billion in cash. Universal’s $1.9 billion cash offer, however, left Citigroup with the pension obligations. Estimates for the amount of money necessary to pay out the pensions over the lifetme of the plan have ranged dramatically from $200 million to $600 million.

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-- Alex Pham