Mohns Take Pay Cut

Keeping the story warm during the lull before the July 10 deadline for bidders to pitch for BMG Music Publishing, the U.K.’s Financial Times reported that the family that owns it is taking a pay cut.

The Mohns and the charitable foundation that owns the business are said to be taking 40 percent less out of the pot in a bid to wipe the debts it incurred to buy out the 25 percent held by Groupe Bruxelles Lambert (GBL), which was the company’s only other shareholder.

According to the FT figures, which are unlikely to be far off the mark because the Mohns own a slice of its German sister paper, the family and charitable foundation are going to need to tighten their belts and accept a dividend between euro 100 million and euro 150 million (US$128 million and US$192 million). Last year, they took closer to euro 167 million.

“The family and foundation decided to take a smaller dividend. It doesn’t make sense to give more money to the foundation at the moment. They don’t need it,” chief exec Gunter Thielen explained.

The family and foundation received euro 591 million in dividends over the past four years, as Bertelsmann’s return on sales improved from 5.1 percent to 9 percent.

The Mohns’ decision helps explain why Bertelsmann is so confident that it can finance the euro 4.5 billion debt it raised to buy GBL with only minimal disposals – obviously including BMG Music Publishing – and take the rest from cash flow.

The FT said it should be able to wipe the debt by the beginning of 2008.

Bertelsmann borrowed to buy GBL rather than raise cash by floating some of its own 75 percent stockholding, thereby continuing the Mohns’ long-standing intention of keeping the company in private ownership.

It seems that principle is written in stone, as former chief exec Thomas Middelhoff found when he was fired in 2002, reportedly because he thought the Mohns should raise cash for acquisitions by floating some of its own 75 percent shareholding.

According to a statement Bertelsmann put out at the time, Middelhoff’s departure was due to “differences in views between the chief executive and the supervisory board and management.”

Middelhoff appeared on German TV saying the Mohn family bristled at the idea of selling any of their shares.

Despite reports that it might be considering raising cash by restructuring its recorded music joint venture with Sony, the German media giant is insisting that the music publishing company is the only asset with a “For Sale” sign on it.

Not all of the media is buying that. Reuters ran a July 5 report saying “a source familiar with the situation,” who happened to be anonymous, said the company is still considering if it should reduce its stake in the joint recording venture.

As the July 10 deadline drew nearer, the U.K. business pages were rife with speculation about who’s likely to be among the 12 companies that have been invited to put in an offer.

The FT said more than 75 companies showed an interest in buying it but Bertelsmann has whittled the list to the dozen most likely contenders. The offers were expected to come in around the euro 1.5 billion mark and the shortlist was expected to be announced by July 15th.

It was expected to include Vivendi, which is also reported to be considering bids for either Warner or EMI’s publishing businesses, depending how those two companies’ merger or acquisition negotiations pan out.

It might appear to be a buyers’ market with two world leaders up for sale, but such cash-generative businesses are likely to attract bids from finance houses as well as the music trade.

– John Gammon