Sony-BMG Merger a Done Deal

[DudeAsInCool]

Progress Made on BMG-Sony Music Merger

By HEATHER TIMMONS and ANDREW ROSS SORKIN

Published: December 12, 2003

ertelsmann and Sony are planning to announce as early as today a final agreement to combine their music groups, according to executives close to the negotiations.

The completed deal would come about a month after the two companies announced a nonbinding agreement to join their two music units in a 50-50 venture.

The combination of Sony Music, No. 2 in the world, and Bertelsmann's BMG, No. 5, would have 25.2 percent of the global market, while still trailing the leader, the Universal Music Group. The new company's roster of stars would include Bruce Springsteen, Celine Dion, Christina Aguilera and Elvis Presley.

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Officials of each company were reviewing the final details of the transaction last evening, the executives said, in anticipation of an announcement today, though they cautioned that it could be delayed until early next week.

Final terms of the deal could not be learned, but the executives said they mirrored the original 50-50 arrangement announced on Nov. 6. The combined group is expected to be called Sony BMG, and Sony executives will fill most of upper management, the executives said.

Even if the two companies can come to a final agreement, the music merger is not guaranteed to happen. Any deal hinges ultimately on approval from European and American regulators.

The world's five largest music companies have tried numerous combinations since 2000, including a merger of BMG with the EMI Group and a merger of EMI with Time Warner, before Time Warner merged with AOL. But both were abandoned because of regulatory concerns.

Sony and Bertelsmann are hoping that regulators will consider their merger in the light of the industry's three-year sales slump and the spread of music piracy.

Indeed, both companies have felt growing pressure in recent months to merge so that they could cut costs as losses have mounted. BMG reported an operating loss of $126 million in the first half; nearly triple its loss in the period last year. Sony Music said it had an operating profit of $2 million in the second quarter, which ended in September, but sales slumped 8.9 percent, to $1.1 billion, from 2002.

While merging the businesses is unlikely to provide an immediate solution to the sales problems, or piracy for that matter, the combined companies would be able to cut costs sharply by combining back-office functions.

The rush by Sony and Bertelsmann to announce their nonbinding deal helped derail a music merger between Time Warner and EMI. Time Warner scrapped its deal with EMI because of worries that regulators would not approve both deals. Instead, Time Warner sold its music business for $2.6 billion to Edgar Bronfman Jr. and a consortium of investors led by Thomas H. Lee.

NY Times.com

[DudeAsInCool]

ony, Bertelsmann Sign Music Merger Deal

Fri December 12, 2003 09:53 AM ET

By Boris Groendahl

BERLIN (Reuters) - German media company Bertelsmann and entertainment conglomerate Sony of Japan have agreed on a merger of their music units in the latest move to consolidate an industry grappling with a four-year crisis.

The 50-50 joint venture, Sony BMG, would be the world's second-largest record label, combining the recorded music units of Bertelsmann's BMG and Sony Music, but excluding music publishing and CD production.

"The foundation of a joint music venture with Sony is a clear proof of our commitment to the music business," said Bertelsmann Chief Executive Gunter Thielen in a statement. "The music business remains a core business for us."

The creation of the joint venture, based in New York, should help cut costs as the industry grapples with weak retail sales, online file-sharing and fierce competition with other forms of entertainment.

Sony BMG would combine the world's second-largest label Sony, which includes such artists as Beyonce Knowles and Bruce Springsteen, with the No. 5 contender, Bertelsmann's BMG, which is home to Britney Spears and Elvis Presley.

The new label would rival market leader Universal Music's 25.9 percent share of global music sales, with a share of 25.2 percent based on 2002 sales.

NEEDS WATCHDOG APPROVAL

The deal still needs the approval of both European and U.S. competition watchdogs, which have blocked earlier attempts to merge any two of the world's top five music labels.

The firms are looking for more favorable treatment this time around, though, hoping that regulators will factor in the dismal state of the industry.

Hit by rampant piracy and competition from other entertainment such as video games, music sales are expected to fall for the fourth year in a row in 2004.

Last month, Time Warner Inc. said it would sell its Warner Music business to a group led by Edgar Bronfman Jr. for $2.6 billion.

Sony BMG's board of directors will be made up of an equal number of members from Sony and Bertelsmann. BMG CEO Rolf Schmidt-Holtz will become chairman, while Sony Music's head Andrew Lack will become chief executive.

The Sony BMG deal does not include Sony's Japanese music business SMJE, Bertelsmann said.

Sources said earlier the new company was expected to assume 90 million euros ($110 million) in debt from Sony, and that the deal involved no cash payment. Bertelsmann declined to comment on that. ($1=.8219 Euro)