Documents reveal breakdown of ownership in the Sony-led consortium's purchase

Documents just released containing details of the EMI Music Publishing acquisition by an investor consortium led by Sony Corp. of America include much financial data heretofore unknown by the music industry, as well as the general public.

For example, Michael Jackson's estate owns nearly 10% of EMI Music Publishing, while it will cost about $108 million to rationalize the shift of EMI's song catalog from being overseen by an operational company to a Sony/ATV Music Publishing-administered song portfolio. Sony/ATV and the Jackson estate declined comment.

As previously reported, the Sony-led consortium--comprising of Sony, the Jackson estate, Mubadala Development, Jynwel Capital Limited, the Blackstone Group's GSO Capital Partners and David Geffen--closed a $2.2 billion deal on June 29, 2012, to buy EMI Music Publishing. The consortium put up $803 million, acquired a $1.2 billion term loan secured by EMI assets and also issued $403 million in unsecured notes, the lattermost providing a slight cushion beyond the price tag.

The Sony/Jackson estate piece of EMI is 39.8%. Out of that total, Sony owns 74.9%, while the Jackson estate, identified only as "a third-party investor of Sony's U.S.-based music publishing subsidiary" in the 6-K filing, owns 25.1%.

According to the report, most of the equity was put up by Abu Dhabi, United Arab Emirates-based firm Mubadala and Sony-meaning Arab and Japanese investors now own the rights to the likes of "Over the Rainbow" and "Have Yourself a Merry Little Christmas." Meanwhile, the other partners apparently bought the unsecured notes. Sony/ATV is a joint venture, with each partner owning 50%--although Sony/ATV also holds an option to buy out half of the Jackson estate's holdings in the company.

Meanwhile, Sony/ATV is well into an integration plan, according to Moody's Investors Services, which issued a rating report on EMI Music Publishing. The report said that management had implemented approximately half the estimated $106 million in total restructuring costs during the two-year restructuring period. It further said that, at the end of the period, EMI Music Publishing will have only eight employees. However, it also noted that Sony/ATV will hire 200 new employees, most of them presumably coming from EMI's former staff.

Sony/ATV management has already said it will operate the two publishing portfolios as one company. To ensure that both ownership groups--Sony/ATV and EMI Music Publishing--benefit equally, the publishing from all songwriters signed since the acquisition is being split evenly between Sony/ATV and EMI.

After royalty payments are made to songwriters and publishers administered by EMI, and 15% of net publisher's share is paid to Sony/ATV as an administration fee, earnings before interest, taxes, depreciation and amortization is expected to be 35% of about $700 million in annual revenue, or $245 million. That makes for a nice cushion for a projected $130 million in annual interest payments, and should also cover $15 million in annual capital expenditures, according to Moody's.

Meanwhile, the 15% administration fee that Sony/ATV is collecting for managing the EMI portfolio represents the traditional amount paid for that function. That could yield Sony/ATV about $52 million, based on the projected $700 million in revenue, and the 45%-50% of the net publisher's share left after royalty payments.