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Europe’s two biggest media companies on Wednesday emerged from the shadow of the dotcom collapse as France’s Vivendi struck its largest deal since the bubble, allowing German rival Bertelsmann to clear debt accrued from the same era.
Vivendi’s Universal Music Group won a €1.6bn auction for Bertelsmann’s music publishing business and agreed to stop suing its rival in the US for alleged infringement of copyright through the Napster music-download site Bertelsmann helped finance. The deal marks the biggest acquisition by the French company since retrenching in the wake of the expansive stewardship of Jean-Marie Messier.
Vivendi’s plan to create the world’s largest music publisher, leap-frogging the UK’s EMI, has been structured to ensure Bertelsmann will receive the proceeds by the end of the year, regardless of whether it secures clearance from European competition watchdogs.
Impala, a group of independent music labels that in July forced a review of the merger of Bertelsmann and Sony’s recorded music businesses, wrote to Bertelsmann and Vivendi on Wednesday warning it would lobby against the deal at the European Commission.
“This is strengthening an existing collective dominant position in the music publishing market,” said Isabelle Wekstein, a lawyer for Impala. Impala is also understood to be pressing for a review of Vivendi’s combined power in music publishing and recorded music. Should regulators block the deal, Vivendi could be forced to sell parts of the business, possibly to unsuccessful bidders in the BMG auction.
The BMG sale puts Bertelsmann on track to fulfil its ambition of paying off by late next year the €4.5bn of debt it took on this summer to buy back a quarter of Bertelsmann from the Belgian investor Albert Frere.
Thomas Middelhoff, Bertelsmann’s former chief executive, gave Mr Frere the stake five years ago in return for the third of RTL Television Bertelsmann did not already own.
Mr Middelhoff was responsible for Bertelsmann’s involvement with Napster, which prompted a whirlwind of litigation from the music industry in US courts that might take years, and billions of dollars, to settle.
Universal’s recorded music business had filed one of three lawsuits against Bertelsmann, claiming unspecified billions of dollars in damages, and was party to a music publishers’ class action seeking $17bn in damages. The remaining members of the class action suit and EMI, which filed a separate suit, are still pursuing their claims.
EMI and Warner Music Group are hoping the valuation of BMG Music Publishing, at 20 times earnings before interest, tax, depreciation and amortisation, will highlight the value of their own catalogue businesses.
Bertelsmann reported a 14.5 per cent rise in revenues for the first six months of the year, to €9.1bn, and 8.9 per cent growth in operating earnings before interest and taxes to €701m.
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