It Ain’t Over Till It’s Over

Sony’s acquisition of Bertelsmann’s half of their jointly owned record business is unlikely to be the last chapter in the four-year saga, as the independent labels are still challenging the original merger in the European courts.

"It’s simply a change of ownership and the competition issues concerning a company of such market value remain, and need to be resolved," Impala executive chair Helen Smith said in a statement. Sony-BMG is the world’s second-largest record company.

As the latest deal also needs regulatory approval, the courts are faced with ruling on Sony and BMG’s original 2004 merger while examining their breakup.

Sony Music Entertainment, as the new company is to be called, will become a wholly owned subsidiary of Sony Corporation of America.

Upon completion of the transaction, the company will include premier music labels such as Arista, Columbia, Epic, J, Jive, RCA and Zomba.

Key recording artists will include Celine Dion, Alicia Keys, Yo-Yo Ma, Bruce Springsteen, Justin Timberlake and Usher.

As part of the transaction, the parties have agreed to continue to share the company’s manufacturing and distribution requirements between Sony’s manufacturing subsidiary – Sony DADC – and Bertelsmann’s services company – Arvato Digital Services – by extending the agreements with Arvato for additional terms of up to six years.

In addition, Bertelsmann will take over selected European music catalog assets from Sony BMG.

A report in The Times of London said "the warring parties" couldn’t agree on what the merged venture was worth.

Sony was reportedly pitching it at about three-quarters of Bertelsmann’s $2.4 billion valuation. The German company got the $1.2 billion it’s said to have wanted, although a chunk of it comes from money that’s already sitting on Sony-BMG’s balance sheet.

Sony is forking out $600 million in cash, handing over half of Sony-BMG’s current funds, with the rest of the Bertelsmann valuation coming from a six-year CD-pressing contract and some European music-rights catalogs.

Sony execs are likely to be happy that the deal looks good, particularly as they appear to have paid 4.7 times the valuation of underlying profits. Terra Firma purchased EMI for £3.2 billion – 18.6 times the profit value.

The Wall Street Journal speculated why, in a shrinking recording market, Sony would want to invest in it. For one thing, aggressive cost cuts were difficult, as Sony and Bertelsmann had to agree on major decisions.

One of the first things to tackle should be the entrenched salary structure, the WSJ said.

"Plenty of senior executives are still in place earning millions of dollars a year, almost guaranteed, regardless of how the company performs," the paper said.

The U.K. papers are also speculating about the company’s future and wondering how long Rolf Schmidt-Holz, who comes from the Bertelsmann camp, will continue as chief exec.

Rob Stringer, who heads up Sony Music Label Group in the U.S. and is the brother of company chief exec Howard Stringer, looks to be next in line for the throne.