BMG Music Publishing Accepts $2.1 Billion UMG Offer

COLOGNE, Germany ? Vivendi and its Universal Music Group agreed to buy Bertelsmann's BMG Music Publishing business for ?1.6 billion ($2.1 billion) in a deal that will create the world's largest music publishing company, Vivendi and Bertelsmann announced Wednesday.

>In a separate announcement, Bertelsmann said it will pay Universal Music $60 million to settle litigation related to music file-sharing service Napster.

Vivendi beat out six other bidders -- both music companies and private investment groups -- in a competitive auction. The $2.1 billion price tag was higher than many analysts had predicted and could lead to an increase in valuation for music publishing assets at competitors EMI and Warner Music.

The deal will merge Universal Music publishing catalog, with songs from artists such as 50 Cent, U2 and Elton John, with that of BMG Music Publishing, whose roster includes Coldplay, Christina Aguilera and Robbie Williams.

A merged UMG-BMG music-publishing business will be the world's largest, with about 25% of the market. This compares with the current champ, EMI Music Publishing, which controls about 21%-22% of the market. Right behind is Warner/Chappell Music, which has about 19%-20% of the business.

Music publishers control the rights to melodies and song lyrics and make their money licensing them to record companies, film and TV producers, ringtone and video-game makers. Compared with the often turbulent recorded music industry, music publishing is thought to be a more stable business and can be highly profitable after a company has amassed a catalog of millions of songs.

Speaking in Paris, Vivendi CEO Jean-Bernard Levy called the BMG Music Publishing deal "a once-in-a-lifetime opportunity, to develop our music publishing business and to raise the value of Universal Music Group."

The BMG Music Publishing catalog holds rights to more than a million songs and is heavily weighted toward younger artists and more recent hits. Songs from such performers as Nelly, Maroon 5 or Mariah Carey are well represented. The core of the EMI and Warner Music catalogs are evergreen classics with a more proven track record.

"While the ($2.1 billion) price is higher than expected, we see this as a positive for Vivendi," said Ian Whittaker of UBS Media. "The deal would make Vivendi the world's largest music publisher ... and we would expect Vivendi to be able to leverage significant synergies with its recorded music arm."

The deal still has to be approved by U.S. and European media regulators. While U.S. approval is expected to be no problem, European watchdogs could have an issue with BMG Music Publishing going to another music company.

In July, the European Union's Court of First Instance challenged the 2004 merger between Bertelsmann's BMG recording music business and Sony Music. The court ruling led WMG and EMI Group to abandon their attempts to acquire each other.

Analysts expect fewer problems with the Vivendi deal, as the music publishing business does not deal directly with consumers and, therefore, cannot affect CD prices. However, independent music association Impala, which was responsible for the EU court blocking the Sony-BMG merger, has pledged to challenge the sale of BMG Music Publishing. The EU has said it will look carefully at the deal.

Bertelsmann has said it expects the sale to go through by the end of the year. The German group is also bullish about the chances for the Sony-BMG merger. The company has resubmitted its application to the EU and said Wednesday it expects merger negotiations "to restart in September."

Bertelsmann has earmarked the cash from the sale of BMG Music Publishing to go to paying down a ?4.5 billion ($5.8 billion) bridge loan. Bertelsmann took out the loan to buy back a 25.1% stake in the firm held by Belgian investor Groupe Bruxelles Lambert.

Sarah Wachter in Paris contributed to this report.