SOURCE:
Reuters
2008-08-05 11:53:50
FRANKFURT/TOKYO (Reuters) –
Sony Corp (6758.T) agreed to
buy Bertelsmann’s 50 percent stake in their Sony BMG music
joint venture for around $900 million, ending a four-year
venture that never managed to beat the music industry’s woes.
Sony said in a statement on Tuesday Bertelsmann (BERT.UL)
will also get $300 million of the cash on Sony BMG’s balance
sheet, valuing the deal at around $1.2 billion, though the
value to Bertelsmann, including tax breaks, is higher.
The music company — the world’s second-largest after
Vivendi (VIV.PA) unit Universal — will now be called Sony
Music Entertainment Inc (SMEI) and become a wholly owned
subsidiary of Sony Corporation of America, subject to
regulatory approval.
Recording artists at SMEI will include Celine Dion, Alicia
Keys, Bruce Springsteen, Justin Timberlake, Usher and Jay Chou.
According to Pali Research, the deal values Sony BMG at
about 4.5 times 2008 estimated 2008 earnings before interest,
tax, depreciation and amortization (EBITDA).
Pali’s analysts estimate that rival Warner Music (WMG.N)
trades at 7.0 times 2008 EBITDA, or 4.6 times excluding its
publishing business to make a fair comparison with Sony BMG.
In August 2004, Germany’s privately owned Bertelsmann
teamed up with Japan’s Sony to create the venture — which
includes labels such as Arista Records and Zomba — to save
costs amid a decline in album sales worldwide.
In 2007, global recorded music sales took an 8 percent dive
to $19.4 billion, according to music industry body IFPI, as CDs
are overtaken by digital forms of music distribution. Sony BMG
slumped to a net loss of $49 million in the April-June quarter
from a $21 million profit a year earlier.
DECLINING TREND
Industry analysts were not clear on Sony’s reasons for
buying the stake but did not condemn the move.
“Sony BMG is a company whose sales have been on a declining
trend. But it has managed to post profits so far thanks in part
to its restructuring efforts,” Daiwa Institute of Research
analyst Kazuharu Miura in Tokyo said.
“There is no reason to see this as particularly negative.
But I don’t think this is something that prompts investors to
chase Sony shares, either,” the analyst added.
A Sony spokesman in Tokyo said the electronics maker
expects the transaction to be completed later this year but
declined to comment on how the deal would affect Sony’s
earnings.
Sony added that it saw net cash costs of around $600
million as it did not consolidate Sony BMG’s cash.
For Bertelsmann, the strategy is clear. Chief Executive
Hartmut Ostrowski has said divisions that were not meeting
their targets would be sold as Bertelsmann was focused on
growth.
Ostrowski, who took over the helm at Bertelsmann in
January, has sold off large chunks of the company’s loss-making
book unit, and a sale of Sony BMG had been expected. “This move
is consistent with our new growth strategy and will enable us
to focus on our defined growth areas,” he said in a statement.
Music analyst Mark Mulligan at media research firm Jupiter
said the move was not just related to difficult times in the
music industry.
“It has much if not more to do with Bertelsmann refocusing
itself. What Bertelsmann really created was a cross-media
megalith, trying to do too many things across too many areas,”
he said.
Bertelsmann also owns Europe’s largest broadcaster RTL
Group (AUDKt.BR), publishing house Gruner & Jahr and a digital
services division, Arvato.
But Bertelsmann will not exit the music industry entirely
and will take over selected European music catalogue assets,
which generate about $20 million of Sony BMG’s revenue.
A Bertelsmann spokesman said these consisted of the
catalogues of about 200 Europe-focused artists such as
Scorpions and Terence Trent D’Arby.
That was a sign, Informa’s Dyson said, that Bertelsmann
still thought there was money to be made in music, just not in
retail. “The demand for music has increased everywhere but in
traditional music sales.”
(Additional reporting by Georgina Prodhan in London and
Yinka Adegoke in New York; Editing by David Holmes)
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