Musical chairs
Sony Corporation of America announced today that it’s buying out Bertelsmann, the 50 percent joint-owner of Sony BMG, for $600 million to make it a wholly owned subsidiary called Sony Music Entertainment Inc. (SMEI).
“This acquisition will allow us to achieve a deeper and more robust integration between the wide-ranging global assets of the music company and Sony's products, operating companies and affiliates,” said Sony boss Howard Stringer.
According to the press release, “SMEI will be comprised of premier music labels such as: Arista Records, Columbia Records, Epic Records, J Records, Jive Records, RCA Records, and Zomba. Key recording artists will include Celine Dion, Alicia Keys, Yo-Yo Ma, Bruce Springsteen, Justin Timberlake, Usher and Jay Chou.”
A separate statement lays out the details of the deal:
The transaction will be structured as follows: First, a portion of Bertelsmann’s interest in SONY BMG will be redeemed for approximately $600 million of cash by SONY BMG (SONY BMG has not been consolidated by Sony and will not be consolidated until after this transaction closes).
Sony’s U.S. wholly-owned subsidiary, Sony Corporation of America, will then purchase the remaining interest from Bertelsmann for approximately $600 million. As a result, Bertelsmann will receive approximately $900mm in value for its 50% stake plus $300mm of its share of cash on Sony BMG's balance sheet. Sony views this as approximately $600mm net cash cost as it does not consolidate Sony BMG’s cash.
In addition, Bertelsmann will be taking over a limited amount of selected European music catalog assets from SONY BMG. These catalogs represented approximately $20 million (less than 1%) of SONY BMG’s revenues in calendar year 2007. The parties have also agreed to continue to share the company’s manufacturing and distribution requirements between Sony’s manufacturing subsidiary, Sony DADC, and Bertelsmann’s services company, Arvato Digital Services GmbH (“Arvato”), by extending agreements with Arvato for additional terms of up to six years.
While on one level this strengthens Sony's unique position as the ownder of media, distribution and the hardware we use to consume it, you have to question the wisdom of moving further into the music business when it's losing so much revenue to illegal file-sharing.
On the other hand, Sony doesn't seem to have done much with its Walkman brand recently, so maybe we're about to see another rival for iTunes.
Press release: Sony to Purchase Bertelsmann's 50% Stake in Sony BMG
