Sony Completes Acquisition Of EMI Music Publishing Despite Indie Objections
Sony Corp. has completed its acquisition of EMI Music Publishing, which will be merged into Sony/ATV giving the company about $1.275 billion in revenue, based on most recent annual revenues of about $610 million for Sony/ATV and $663 million for EMI Music Publishing.
The closing of the deal comes three weeks after the EU Commission cleared the deal by granting it regulatory approval, despite strenuous objections from the European indie label and music publishing community, led by IMPALA. IMPALA has yet to decide if it will appeal that decision.
Meanwhile, Sony didn’t wait around and instead announced the deal’s closing in a filing with the SEC today, more than six years after it was part of a consortium that acquired EMI Music Publishing for $2.2 billion At that time in 2012, Sony led the consortium of investors that acquired EMI Music Publishing comprised of two investor groups, Partners A, which had 60.17 percent, led by Mubadala, and also consisting of Jynwel Capital whose 13.27 percent share has since been confiscated by the U.S. Dept. of Justice, as well as four Blackstone/GSO investments funds and Pubwest, believed to be David Geffen. Partners B owned 39.83 percent and consisted of Sony Corp. and the Jackson estate.
In completing the deal -- which carried a $4.75 billion valuation -- Sony made a string of payments. First off, Sony paid out $2.3 billion, of which $1.9 billion went to the A Partners; $200 million went to warrant holders; and $190 million went to a management equity plan, sources say.
The warrant holders were some Partners A members -- GSO and Geffen -- that in addition to putting up equity cash, also put up debt to help finance the original deal in buying EMI in 2012. When that debt was paid back to those Partners A lenders, they received warrants too.
As for the management equity plan-a reward for enhancing the value of the EMI catalog -- sources say Sony/ATV chairman/CEO Martin Bandier gets a bonanza payday from the closing of the deal, walking away with half of the $190 million equity plan payout, or about $95 million. The remaining $95 million will be shared among about 15 senior executives at the publishing company, sources say.
In addition, Sony paid $287.5 million to the Jackson estate for its nearly 10 percent share; and agreed to assume $1.359 billion in debt. In its filing to the SEC, Sony says it paid off $960 million of that debt from company cash, leaving about $400 million in debt on Sony’s balance sheet from the deal.
Finally, it should be noted that in the initial deal from 2012, Sony put up $320 million. All in all, that adds up to Sony paying about $3.97 billion in cash and 400 million in debt for a total of $4.317 billion for EMI.
Sony and other consortium investors also received cash dividend distributions along the way, while Sony/ATV -- which administered the EMI catalog -- also was the beneficiary of annual administration fees that ran anyway from $30 million to $50 million for six years. Overall, Billboard estimates that Sony may have taken $300 million out of the EMI deal during the last six years, which means that the deal really costs Sony just about $4 billion -- thanks to the appreciation of its original equity stake in EMI -- for a catalog now valued at $4.75 billion.
As a result of this acquisition, Sony said it expects to record additional operating income of about 105 billion yen, representing a non-cash step-up gain for the approximately 40 percent equity interest in EMI that Sony already owned and reflecting costs relating to the acquisition for its third quarter financial results ending Dec. 31. The company further said that the expected impact of the transaction on Sony’s consolidated results has already been incorporated into the forecast for consolidated financial results for the fiscal year ending March 31, 2019, as announced on October 30, 2018. As previously announced, Sony is currently evaluating the income tax expense expected to result from the closing of this transaction.