On Friday, the Federal Trade Commission (FTC) gave approval to the deal between Sony Corporation of America (:SCA) - a U.S. subsidiary of Sony Corporation (SNE) - and EMI Music Publishing. The agreement, through which Sony would buy EMI from Citigroup Inc. (C), received the U.S. regulators’ nod without any restrictions.
However, the deal got a confirmation from the European Union in April on one condition - it has to vend the worldwide publishing rights of artists, including Robbie Williams and Lenny Kravitz. In order to abide by the antitrust law, the association agreed with the European regulators to sell certain assets.
In November 2011, Citigroup divided 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.
Citigroup traded 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). UMG still awaits regulatory approvals. On the other hand, the publishing division was sold to a group of investors led by Sony for $2.2 billion.
The group of investors acquiring EMI Music Publishing along with Sony included 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.
The sale of EMI’s recorded music and publishing assets is an achievement for Citigroup. In 2007, Guy Hands and his private equity team at Terra Firma offered $6.7 billion as the bidding amount for EMI but failed to meet the loan payments provided by Citigroup to finance the deal. Therefore, Citigroup finally apprehended EMI in February and since then had been conducting an auction to sell this British music company.
After-Effects of the Deal
Upon closure of the deal, 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 the EMI catalog.
According to Rob Wiesenthal, the Chief Financial Officer of Sony Corporation of America, this deal strengthens the company’s plan to build 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 enable the songwriters’ music to reach a wider audience.
After evaluating all the pros and cons, we believe that this two-part sale deal will maximize the value of EMI for Citigroup while enabling the U.S. Bank to recoup its investments. Moreover, under the current fundamental pressure on the banking sector, such approvals will aid Citigroup to stand out in the market.
Currently, Citigroup retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain our long-term ‘Neutral’ recommendation on the stock.
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