BMG duet is over as Sony goes solo

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Sony completed its buyout of Bertelsmann's 50% stake in their joint music label Sony BMG on Tuesday, but the deal's tricky math had the companies and observers touting different price tags.

In a filing with the U.S. Securities and Exchange Commission, Sony said it will pay Bertelsmann $600 million for its stake plus leave Bertelsmann the $600 million in cash that is on the joint venture's balance sheet.

This left the valuation of the company at $1.2 billion, but because Bertelsmann already owned $300 million of the Sony BMG cash, Sony only effectively paid $900 million.

Meanwhile, Bertelsmann also claimed a victory, arguing that, including tax advantages, the deal actually is worth $1.5 billion for the German media group.

Rebranded Sony Music Entertainment, the group controls such imprints as Arista, Columbia, Epic, Jive, J and Zomba and boasts a stable of artists that includes Justin Timberlake, Alicia Keys, Usher and Bruce Springsteen (pictured).

Owning Sony BMG outright will allow Sony to sell music along with its Sony Ericsson cell phones and PlayStation game consoles. The deal could even help sales of the company's Walkman digital music players, analysts said.

With new leverage on the digital music front, Sony CEO Howard Stringer said the company now will be able to offer customers "a total entertainment experience."

But the buyout will have to be approved by U.S. and European regulators, who could raise concerns about that vertical integration at Sony.

Bertelsmann and Sony set up the joint venture in 2004, but Bertelsmann has been looking to dump Sony BMG for some time. CEO Helmut Ostrowski has sounded a "go for growth" battle cry since he took over Jan. 1, and he believes that the shrinking music business will be unable to meet his growth targets.

Bertelsmann said the sale is part of a strategic shift toward music-rights management across new platforms. Hartwig Mausch, former head of Bertelsmann's music publishing unit, has been named the new managing director of BMG and will be based in Berlin.

Bertelsmann and Sony will continue to share distribution and manufacturing duties and Sony BMG has extended its services deal with Bertelsmann subsidiary Arvato for another six years.

Bertelsmann Music Group also will acquire selected European music rights catalogs from Sony BMG, which Sony Music will distribute.

Sony BMG is the second-largest music company in the U.S., with a 24.8% share of the market during the first six months of 2008, according to Nielsen SoundScan.

Sony appeared to be the only serious party interested in acquiring Bertelsmann's stake in Sony BMG. Unlike EMI Group, which British private equity fund Terra Firma acquired last year for £2.4 billion, Sony BMG doesn't include a lucrative music publishing business that might attract other private equity bidders.

Drew Lipsher, a partner at Greycroft in New York, said recently that the buyout is a necessary move if the Japanese electronics giant is to have any hope of building its music business.

"By controlling the whole show, they stand a chance,'' Lipsher said. "A single parent with a single perspective is better positioned to make far more aggressive and, especially over the short term, unpopular decisions."

Scott Roxborough reported from Cologne, Germany; Georg Szalai reported from San Francisco. Billboard contributed to this report.
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