Vivendi Buys BMG Publishing

Vivendi has agreed to acquire the BMG Music Publishing Group from Bertelsmann AG for $2.09 billion. The deal will give the French conglomerate the world’s largest music publishing catalog.

Vivendi bested a group of other bidders that reportedly included Warner Music Group, Viacom and EMI Group.

Vivendi’s Universal Music Group was thought to have the nod from the beginning, since its smaller music publishing arm was likely to face fewer regulatory constraints than EMI or Warner.

BMG Music Publishing owns the rights to more than 1 million songs by recording artists including Nelly, Maroon 5, Christina Aguilera, Justin Timberlake, and Mariah Carey, as well as classic hits by The Beach Boys, Barry Manilow and other entertainers.

Universal Chairman and CEO Doug Morris said the acquisition would diversify the company’s portfolio into “key areas,” such as classical and Christian music.

“The acquisition of BMG Music Publishing is a unique opportunity to grow our music publishing business and enhance the value of Universal Music Group at a time when the music market is improving, supported by technological innovations and digital sales,” Vivendi CEO Jean Bernard Levy said in a statement.

The deal raised eyebrows among some analysts, who questioned Vivendi’s strategic rationale and said the company paid too much.

Standard & Poor’s said, however, that it was maintaining its credit ratings for Vivendi and noted that music publishing “is a profitable and fairly stable business.”

“The transaction will slightly strengthen Vivendi’s overall business risk profile and support fully owned media operations,” said S&P credit analyst Patrice Cochelin.

Bertelsmann AG said the transaction has been approved by the supervisory boards of both companies and expects to close the deal by year-end. It still must be approved by U.S. and European Union regulators, and analysts warned that they are likely to scrutinize it particularly closely because of the new entity’s size.

BMG Music Publishing’s earnings before interest, taxes, depreciation and amortization totaled euro 81 million ($105 million) on revenue of euro 371 million ($475 million) in 2005.

Music publishers generate revenue by licensing songs for use in movies, TV shows, CDs, video games, ringtones and other media. The companies also collect performance fees when songs are played on the radio or in public venues such as clubs.

During the second quarter of this year, songs held by BMG Music Publishing accounted for 7.3 percent of the airplay on U.S. radio stations, or fifth overall, according to Nielsen BDS. Universal Music Publishing had a 10.2 percent market share, or fourth behind No. 1 EMI Music Publishing’s 19.8 percent share, during the same period.

Bertelsmann and Universal Music Group also said they had settled copyright litigation over the software application Napster, which originally allowed millions of users around the world to share and swap music files.

The companies said Universal will receive $60 million, which includes reimbursement of legal fees and expenses, and covers the resolution of the legal claims of Universal’s recorded music and music publishing businesses as well as those of BMG Music Publishing.

Bertelsmann, which had invested in Napster, admitted no liability.