On Friday, Citigroup Inc. (C) split EMI Group Ltd., a British music company, and sold it for $4.1 billion. EMI’s music and publishing businesses were separated and sold in two parts.
Citi agreed upon to sell EMI’s recorded music division to Vivendi’s Universal Music Group (UMG), the world’s largest record company in terms of market share, for $1.9 billion (£1.2 billion). Moreover, the publishing division was sold to a group of investors led by Sony for $2.2 billion.
The deals are dependent on certain closing conditions, including regulatory approvals and stringent scrutiny in Europe, the U.S., Japan and Australia.
The sale of EMI’s recorded music and publishing assets in billions is an achievement for Citi. In 2007, Guy Hands and his private equity team at Terra Firma bid $6.7 billion for EMI but failed to meet the loan payments provided by Citi to finance the deal. Therefore, Citi finally apprehended EMI in February and since then has been conducting an auction to sell the UK group.
Vivendi, the buyer of EMI’s recorded music division, believes the deal happened at the best time in the music industry as US recorded music volumes rose around 5% in the current year. Vivendi anticipates annual savings of $150 million from the deal, thereby increasing profits in the first year.
Further, Vivendi announced that if required, would sell $680 million (500 million euros) worth of non-core assets. Furthermore, UMG aims to keep up EMI's cultural legacy and inventive diversity as before while planning to invest in its artists and people to breed the company's assets for the future.
On the other side, the group of investors acquiring EMI Music Publishing with Sony Corporation of America (SCA), a U.S. subsidiary of Sony Corporation (SNE), includes the Estate of Michael Jackson, Mubadala Development Company PJSC, Jynwel Capital Limited, the Blackstone Group’s (BX) GSO Capital Partners LP and David Geffen, the billionaire.
With the consent of the group of investors acquiring EMI publishing unit, Sony/ATV Music Publishing will manage EMI Music Publishing. Sony/ATV Music Publishing is a joint venture between SNE and the Michael Jackson estate with 38% holding in the consortium.
EMI Music Publishing, a leading popular music publisher, has a huge collection of musical compositions and a big list of successful songwriters. The business represents and controls varied catalogs of over 1.3 million music copyrights covering all generations, periods and regions of the world. Therefore, Sony/ATV aims to fabricate a strong platform to sustain significant growth and earn revenues from EMI catalog.
According to Rob Wiesenthal, Chief Financial Officer, Sony Corporation of America, this deal strengthens the plan of building the operational breadth of Sony/ATV Music Publishing with the proficiency and experience of Marty Bandier, Chairman and CEO of Sony/ATV. Following the acquisition, the growth of digital music services will aid in bringing songwriters’ music to a wide range of audience.
After evaluating all pros and cons, we believe this two parts sale will maximize the value of EMI for Citi while aiding the US Bank in recouping its investments.
Currently, Citigroup retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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