BMG duet is over as Sony goes solo

Label group buyout done, but price tag unclear

NEW YORK -- 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 Tuesday.

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.

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 roughly 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 euros, 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.

Sony BMG timeline

-- Jan. 21, 2000: Bertelsmann says it is weighing acquisitions in a bid to become a leading music industry player.

-- Oct. 9, 2003: Bertelsmann says it is in talks with AOL Time Warner, Sony and EMI Group about a deal to create a joint venture with its BMG music label.

-- Nov. 6, 2003: Bertelsmann says it plans to merge its BMG music business with that of Japan's Sony in a 50-50 joint venture.

-- Jan. 26, 2004: A contingent of independent music labels vows to fight the proposed merger.

-- Feb. 12, 2004: The European Commission says it will open an in-depth probe into the planned music merger.

-- July 20, 2004: The European Commission unconditionally approves the merger of Sony Music and BMG. CEO-designate Andy Lack says he is ready for the new role, which presents "terrific challenges."

-- Dec. 3, 2004: Europe's independent record labels say they have filed a legal challenge to the European Commission's approval of the merger.

-- Dec. 13, 2004: CEO Lack tells the Financial Times he plans to double investment in artists and songs in order to reap the benefits of a music industry revival.

-- May 3, 2005: Restructuring charges at Sony BMG hit Bertelsmann's net profit.

-- July 15, 2005: Michael Smellie, the No. 2 executive at Sony BMG, resigns as COO to return to his family in Australia.

-- Oct. 10, 2005: Bertelsmann tells Sony that it doesn't want to renew Lack's contract, the New York Times reports.

-- Oct. 11, 2005: Sony CEO Howard Stringer throws his support behind Lack.

-- Nov. 19, 2005: Sony BMG's European chief says the company will miss its 2005 sales target in Germany.

-- Feb. 1, 2006: Bertelsmann board member Rolf Schmidt-Holtz will oust Lack as Sony BMG CEO, Germany's Sueddeutsche Zeitung reports.

-- Feb. 3, 2006: Schmidt-Holtz tells aspiring music executives the wrong CEO can destroy a company in two years.

-- Feb. 10, 2006: Lack and Schmidt-Holtz swap roles to resolve the months-long battle between the parent companies.

-- March 22, 2006: Bertelsmann CEO Gunter Thielen says Sony BMG's share of the global market for recorded music fell in 2005.

-- June 1, 2006: Two more Sony BMG executives quit.

-- July 13, 2006: The European Commission says it will have to re-examine the Sony Music-BMG merger after a European court annuls the way it approved the 2004 deal.

-- Oct. 3, 2007: Sony and Bertelsmann win European Commission clearance for the joint venture, for a second time.

-- Aug. 5: After weeks of speculation, Sony and Bertelsmann say Sony has agreed to buy Bertelsmann's 50 percent stake in Sony BMG.

Source: Reuters