Thursday 14 November 2019

Universal gets green light to buy EMI division after agreeing to sell assets

Foo Yun Chee

VIVENDI’S Universal Music Group won EU regulatory approval for its $1.9bn purchase of EMI's recorded music business after agreeing to sell labels that account for about a third of the British company's revenues.

Universal said on Friday it would sell on some of EMI's most prized assets, such as the Parlophone label, home to star acts like Coldplay and Queen, in a move which some analysts said significantly reduced the attractiveness of the deal.

"The whole point of the deal was the back catalogue and getting EMI's artists. But when you look at the bands they had to give away, they are some of their best ones," said Conor O'Shea, analyst at Kepler Capital Markets.

Nonetheless, the deal cements Universal's No.1 position in the European music industry, with a vast library of current top-selling and legendary names including Jay-Z, Kanye West, Katy Perry, Robbie Williams, Pink Floyd and The Beatles.

And some analysts said the sale of assets equivalent to around 30pc of EMI's group revenues, or roughly 10 percent of sales for the combined group, could raise as much as $750m and help Vivendi reduce its debt pile.

The European Commission, which had raised concerns over the potential market power of the combined group, said the disposals would have to be completed in six months.

Rivals Warner Music Group and BMG - which is owned by German media group Bertelsmann and private equity group KKR - are expected to have the edge in acquiring the assets because of their financial resources and music expertise.

A source familiar with Warner's thinking said the European Commission told Universal it would have to sell at least two-thirds of the package to a single buyer.

Warner is the world's third-biggest recorded music company, behind global No.1 Universal and second-placed Sony.

The EU watchdog said buyers must be active record firms or those with a proven track record in the music industry, ensuring there would be a strong rival to Universal.

Virgin founder Richard Branson and Sony Music are among those eyeing the assets, sources have told Reuters. Goldman Sachs and BAML are advising Vivendi on the disposals.

On the block

"These divestitures may lower the future value of synergies, but also reduce the net financial commitment in 2012, when group debt is under scrutiny by rating agencies. So Vivendi may not be so unhappy, after all, from having to give up these assets," said Bernstein analyst Claudio Aspesi.

On the block will be the Mute, Ensign and Chrysalis labels, EMI Classics, Virgin Classics, EMI's share of the "NOW! That's what I call music" compilation business, and EMI units in France, Spain, Belgium, Denmark, the Czech Republic, Poland, Portugal, Sweden and Norway.

In addition, Universal will sell its brands Sanctuary, Co-Op Music Ltd, King Island Roxystar, MPS Records, its share in Jazzland, and its Greek unit.

The company also pledged not to include "most favoured nation" clauses in deals with digital customers for 10 years. Such clauses bar its customers from offering more favourable terms to rivals.

"The very significant commitments proposed by Universal will ensure that competition in the music industry is preserved and that European consumers continue to enjoy all its benefits," EU Competition Commissioner Joaquin Almunia said in a statement.

The combined Universal/EMI will have a market share below 40 percent in Europe after the asset sales, a threshold which typically prompts regulatory concerns.

EMI's seller, Citigroup Inc, acquired EMI from buyout group Terra Firma when it defaulted on loans owed to the investment bank.


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