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Sony buys Bertelsmann's Sony BMG stake for $1.2b
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Bertelsmann AG will sell its 50-percent stake in music business Sony BMG to Sony Corp. in a $1.2 billion deal, the companies announced Tuesday, giving the Japanese company full ownership of the joint venture whose roster of artists include Alicia Keys and Leona Lewis.

A statement released by the privately held Bertelsmann said the new company will be called Sony Music Entertainment Inc. and become a wholly owned subsidiary of Sony Corp. of America. The joint venture was created in August 2004.

In a filing with the U.S. Securities and Exchange Commission, Sony said Bertelsmann is receiving approximately $600 million in cash for a portion of its interest in Sony BMG.

Sony Corp. of America "will then purchase the remaining interest from Bertelsmann for approximately $600 million. As a result, Bertelsmann will receive approximately $900 million in value for its 50-percent stake, plus $300 million of its share of cash on Sony BMG's balance sheet," it said.

A person familiar with the deal speaking on condition of anonymity because he was not allowed to talk to the press, said the deal, including tax advantages, was worth $1.5 billion.

Bertelsmann will also take over a limited amount of selected European music catalog assets from Sony BMG, which represents about $20 million, or less than 1 percent of Sony BMG's revenue last year.

Both companies will also continue sharing manufacturing and distribution requirements between Sony DADC and Bertelsmann's Arvato Digital Service GmbH, extending their agreements for up to six years.

Bertelsmann Chief Executive Hartmut Ostrowski said the decision was made to sell the 50-percent stake after a careful but thorough review. He called it consistent with the German company's new growth strategy.

"This move is consistent with our new growth strategy and will enable us to focus on our defined growth areas," he said. "Sony has been an excellent partner, and they are the right company to take this business to the next step and ensure that it realizes its full value and potential."

Once the deal, which is subject to regulatory approvals, is complete, Sony Music Entertainment Inc. will be comprised of music labels that include Arista Records, Columbia Records, Epic Records, J Records, Jive Records, RCA Records and Zomba. Its artists will include Celine Dion, Bruce Springsteen, Justin Timberlake and Usher, among others.

"Music has been a vital and vibrant part of Sony's culture for over 20 years. This acquisition will allow us to achieve a deeper and more robust integration between the wide-ranging global assets of the music company and Sony's products, operating companies and affiliates," Sony Chairman and CEO Howard Stringer said in a statement.

In March, Ostrowski said Bertelsmann would instead focus on investments in businesses with strong growth potential.

Last month, Bertelsmann said it would sell its North American book club business, including Columbia House and the Book-of-the-Month Club, to the privately held Phoenix, Arizona-based Najafi Companies. Financial terms weren't disclosed.

It also said it would sell its Direct Group book and music clubs in several regions, including some countries in Europe and Australia.

Besides the sale of its stake in Sony BMG, Bertelsmann also said it was realigning BMG music toward rights management, taking over selected European catalogs of music rights from Sony BMG. The catalogs comprise the works of more than 200 artists and will continue to be distributed by Sony Music.

Bertelsmann said taking over the catalogs is an important step toward the planned establishment of a licensing and management platform for exploiting and marketing music rights under the BMG brand.

Bertelsmann said it had named Hartwig Masuch, the new managing director of BMG, to be based in Berlin, and that Maximilian Dressendoerfer, the vice president of BMG, will also be part of the management team.

"The many new distribution paths are causing an increase in the demand for music use rights," said Thomas Rabe, Bertelsmann's chief financial officer.

"In view of this fact, we believe that building a business for the management and exploitation of such rights in Europe is an attractive proposition. We want to take advantage of our opportunities and position ourselves with the strong, well-established BMG brand and a management that is highly regarded in the market," he said.

(AP August 7, 2008)

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