Universal Music to Buy BMG Music Publishing for $2.1 Billion

LONDON – Vivendi's Universal Music has agreed to buy BMG Music Publishing for 1.63 billion euros ($2.1 billion) in a long-expected deal that makes the world's biggest seller of recorded music also the largest in music publishing.

German media conglomerate Bertelsmann AG, BMG Music Publishing's parent company, also said on Wednesday it was settling litigation related to file-sharing service Napster that will see Vivendi receive $60 million.

Vivendi, the French media and telecoms group, topped offers from six other bidders for BMG Music Publishing, which owns the rights to thousands of songs, including ones by Coldplay, Christina Aguilera and Barry Manilow.

It was seen as a frontrunner in the auction from the time it was tipped Bertelsmann would sell BMG earlier this year. A person close to the deal also told Reuters a deal was close on Tuesday.

Publishers have been increasingly coveted by investors because they are partly shielded by many of the piracy issues that have rattled the music industry. In addition to generating revenue when CDs or downloads are sold, music publishers make money by licensing songs to be performed live and for use in films and television shows.

"The acquisition of BMG Music Publishing is a unique opportunity to grow our music publishing business and enhance the value of Universal Music Group at a time when the music market is improving, supported by technological innovations and digital sales," Vivendi Chief Executive Jean-Bernard Levy said.

Bertelsmann, which is selling its music publishing arm to help fund the 4.5 billion euro buyback of a stake in the company, said the agreement would increase its net income by about 1 billion euros.

BMG, the world's third-largest music publishing company, had 2005 revenue of 371 million euros, accounting for about 2 percent of Bertelsmann's total.

The deal price represents about a 9.6 multiple on BMG's net publishers share (NPS), the sector's most closely watched cashflow figure, according to figures supplied earlier by sources familiar with them. Bertelsmann did not disclose BMG's

NPS.

It is a lower multiple than has been paid for other music publishers, although previous deals have been for much smaller businesses such as Acuff-Rose and Dreamworks. Also, copyrights to more and more songs are reverting back to songwriters or their heirs, reducing the future earnings of many catalogs.

For example, in 2013, copyrights granted to a publisher before 1957 and in 1978 can be terminated by a songwriter, and each year following, additional copyright grants can be terminated.

The BMG deal has been approved by the boards of both companies and faces regulatory review by competition authorities in both the United States and Europe.

Bertelsmann said it expected to be paid by the end of the year. Sources close to the deal have said the company would transfer any regulatory liability to the buyer.

A European court this summer annulled 2004 EU approval of the merger that created Sony BMG, a recorded music joint venture between Sony Music and Bertelsmann's BMG, creating uncertainty about how much consolidation will be allowed in the industry.

Meanwhile, the Napster settlement ends one piece of three-year-old litigation against Bertelsmann, which is being sued by various music publishers and record labels for allegedly contributing to copyright infringements by granting loans to Napster and enabling it to survive longer than it would have without the support.

Napster almost single-handedly forced a massive shift in the music industry's business model after it launched in 1999 and went on to became the first widely used peer-to-peer service, allowing consumers to easily swap songs rather than pay for them.

It was eventually shut down by the courts, but was later reborn as a legal music service as the industry began to embrace the file-sharing technology behind Napster and others.

Bertelsmann said it was not admitting any liability as part of the settlement.

"We believe the resolution is a fair one to both parties," Bertelsmann Chief Financial Officer Thomas Rabe said.

Citigroup and J.P. Morgan advised Bertelsmann on the transaction.