EMI and Kohlberg Kravis Roberts (KKR) have joined forces in the $1.5 billion (£822 million) auction for BMG, Bertelsmann’s music publishing business, and are through to the second round, The Times has learnt.
It is understood that Vivendi’s Universal Music arm and Warner Music have also passed the first hurdle, as has the venture capitalist BC Partners, but the final field is likely to be considerably larger.
Other likely survivors are Sony and GTCR Golder Rauner, the Chicago buyout firm, assisted by the veteran record executive Charles Koppelman, who once sold his music publishing operations to EMI.Bertelsmann is selling the business to help it to meet the €4.5 billion (£3 billion) expense of buying out its minority shareholder, Groupe Bruxelles Lambert. The auction is being run by JPMorgan and Citigroup.
Music publishers own the copyright to songs, which earn the owner and the writer a fee when they are played or later covered. Publishing, which is highly profitable, is considered to be the most stable part of the music industry.
KKR is expected to provide most, if not all of the capital for the BMG bid, while EMI provides the management expertise, generating a modest stream of fees. The structure is intended to avoid competition concerns because EMI is already the world’s leading music publisher, with a share of about 20 per cent. BMG’s 13 per cent puts in in third place.
Warner Music, owner of Warner/Chappell, the No 2 publishing business, is prepared to bid on its own, confident that its private equity backers would take on more debt, but it is not expected to bid as fiercely as Universal, which, despite its strength in recorded music, is weak in publishing and keen to gain share.
Bertlesmann said that it had received 14 expressions of interest, including a management buyout, led by Nicholas Firth, chief executive, and backed by Bear Stearns. Viacom, the US media group, was also keen.
The private German company is ploughing on with the auction despite last week’s shock European court ruling overturning regulatory approval for its Sony-BMG recorded music joint venture. It has insisted that buyers take on any risk of dealing with European regulators and it hopes simply to take the highest price.
BMG last year generated revenues of €372.4 million and unspecified double-digit sales. Bankers value it at between $1.5 billion and $2 billion.
BMG, built through 250 acquisitions over the past two decades, owns copyrights to songs by Coldplay and Robbie Williams, both of whom are also signed to EMI’s recorded music division. It also claims to be the world leader in contemporary Christian and classical music.
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