The Universal Music Group has agreed to sell its U.S. and Hanover, Germany, CD and DVD manufacturing and distribution facilities to Glenayre Technologies in a deal engineered by Jim Caparro, the latte
The Universal Music Group has agreed to sell its U.S. and Hanover, Germany, CD and DVD manufacturing and distribution facilities to Glenayre Technologies in a deal engineered by Jim Caparro, the latter company announced this morning (May 9).
Glenayre Technologies, a publicly-traded company, will pay about $122 million. Included in the acquired UMG assets will be $14 million in cash, apparently to meet Germany's regulatory requirements for pension funds. The deal is expected to close within a month, sources say.
In addition to the Hanover facilities, the other UMG assets included in the deal are UMG's manufacturing operations in Grover, N.C., and its distribution operations in Fishers, Ind., Reno, Nev., and Wilkes-Barre, Pa.
Glenayre, which provides next-generation messaging solutions and services for wireless and wireline carriers, will make the acquisition through a new division, Entertainment Distribution Co., which has been formed by Caparro.
The deal represents the culmination of Caparro's effort to start EDC, which he foresees as serving as the music industry's backroom, consolidating manufacturing and fulfillment for the majors. Caparro, previously the president of WEA and before that the chairman of the Island Def Jam Music Group, has already had two false starts in trying to realize EDC.
A year ago he tried to acquire the UMG manufacturing and distribution facilities but that was with a different backer, and the deal fell apart. Before that, he tried to buy the manufacturing, distribution and packaging companies of the Warner Music Group, but lost out to Cinram. Now with EDC on the verge of becoming a reality, the company would compete with Cinram and Deluxe to serve as the music industry's backroom.
Caparro will sit on the board of directors of Glenayre, and will continue in his role as president/CEO of games brand Atari. Thomas Costabile, formerly the president of WEA Manufacturing, will lead EDC as executive VP/COO. He will report to Clarke Bailey, who will serve as interim CEO of EDC.
At the closing, EDC will enter into 10-year supply contracts with UMG under which it will immediately become the exclusive manufacturer and distributor for approximately 80% of Universal's CD and DVD requirements for North America and central Europe.
No layoffs are expected to occur at the acquired facilities, sources say.
Glenayre Technologies reported net income of $1.8 million, or three cents per diluted share, on revenues of $17.9 million for the quarter ended March 31.
According to the company's balance sheet, it has $91 million in cash and short-term investments and little in the way of debt.
At closing, Glenayre will pay $81.9 million. Of that, $35.4 million will be equity provided by Glenayre and $46.5 million in debt raised from a term loan with Wachovia Bank, National Association; Wachovia is also providing EDC with a $10 million revolver. The remainder of the $122 million acquisition price will come in the form of rebates paid back to UMG through 2014.
"EDC's strategy is to become not only the premier manufacturer and distributor of entertainment products and services, but to also be the leader in supply chain logistics for entertainment products," Bailey said in a statement. "This will be achieved by marketing existing services to new third-party customers, by expanding DVD manufacturing and distribution capabilities, and by continuing to participate in the consolidation of the industry through additional acquisitions."
Glenayre stock closed at $2.17 on Friday, giving it a market capitalization of $145.2 million.