BMG Gets Revenue Boost With Deal To Buy Zomba

Bertelsmann's BMG music division is to acquire the rest of Zomba Music Group, one of the world's largest independent music companies. Sources estimate the deal is worth 3 billion euros ($2.84 billion).

Zomba has exercised its "put" option with BMG, effectively requiring the German major to buy the remaining shares it did not own in Clive Calder's group; that option was to expire at the end of this year. BMG has held a 25% stake in Zomba's publishing business since 1991; in 1996, the German major exercised a "call" option to acquire 20% of Zomba's recording business. The transaction, which is subject to regulatory approval, is expected to close later this year.

Zomba's Jive label is home to such acts as Backstreet Boys, Britney Spears, 'N Sync, Michael Bolton, and controversial R&B artist R. Kelly. Zomba also owns Verity, Silvertone, and other labels. It is unclear how the executive rosters of Zomba and BMG will be affected by the deal.

Ownership of Zomba will significantly boost revenues for Bertelsmann, ahead of its well-publicized plans to go public. Estimates put Zomba's annual revenues at $1.2 billion in 2000, with earnings before interest and taxes of $300 million. Since BMG already distributes Zomba in the U.S., the deal will not affect the major's stateside market share.

"Whilst the exercise of this option will undoubtedly be a surprise to many in the music industry, this is a natural culmination of many years of close business ties and a complex series of agreements negotiated 12 years ago," Zomba chairman/CEO Calder says in a statement.

Bertelsmann chairman/CEO Thomas Middelhoff says, "Over the years, I have admired Zomba's impressive results, which are perhaps the most spectacular in the industry. We are very excited about its future prospects, and it will definitely strengthen our music business."

As of Dec. 31, Bertelsmann's debt stood at 422 million euros ($398 million). The Guetersloh, Germany-based group reported an operating profit of 212 million euros ($200 million) in the second half of last year, on net earnings of 949 million euros ($896 million).