Universal Opts For Cautious Approach

Having seen the independent music companies wreck the Sony BMG merger, Universal is taking a more cautious approach in acquiring the German media giant’s publishing business.

Rather than integrate it into its existing empire, Universal will run it as a separate entity until the European Commission has a chance to give its ruling on the deal.

Should the EC determine that the new Universal-BMG’s 25.6 percent market share would give it too much collective dominance in the market, keeping the two companies separate will at least avoid the cost of unraveling them.

After Impala – the independent music companies’ trade association – convinced the European Court Of First Instance that the EC was wrong to allow Sony and BMG to merge their recorded music interests, the two major labels now face the cost and hassle of splitting them up again.

If Universal is forced to sell BMG Music Publishing, it would probably have to swallow the shortfall if it failed to get the euro 1.63 billion it paid for it.

It’s hard to imagine BMG just handing back the money and looking for another buyer, particularly as it needs the cash to help repay the euro 4.5 billion (US$5.7 billion) it raised to buy out Groupe Bruxelles Lambert (GBL), which owned 25.1 percent of the company.

BMG has just raised one-third of what it needed to finance the GBL deal by raising euro 1.5 billion from two bond issues.

The company spent the first part of September touring Europe to drum up support from institutional investors, asset managers, insurance companies, pension funds and other financial institutions.

Barclays Capital, BNP Paribas, Deutsche Bank and Royal Bank of Scotland all took a bite as both issues – a six-year tranche and a 10-year tranche – were oversubscribed.

“The successful placement of a bond issue of this size, following the affirmation of our credit ratings, is further confirmation of our financing strategy for the repurchase of the GBL stake,” said Thomas Rabe, the company’s chief financial officer.

“The recently announced sale of our music publishing business and high operating cash flows will allow us to fully regain our financial flexibility by the end of 2007.

“The high level of investor interest shows that Bertelsmann, as a privately owned and operated company, is well respected in the international capital markets. I am especially pleased with the number of renowned new investors that participated in the transaction.”

The six-year tranche totaling euro 500 million was issued at 99.803 percent and pays a 4.375 percent coupon. The 10-year tranche worth euro 1 billion was issued at 99.222 percent and pays a coupon of 4.75 percent.

– John Gammon