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Bertelsmann, KKR launch joint music rights venture
July 8, 2009 / 2:45 PM / 8 years ago

Bertelsmann, KKR launch joint music rights venture

* Bertelsmann contributes BMG Rights, for 49 pct of JV

* JV to run for 5 years

* KKR to invest 50 mln euros for near term, 200 mln later

FRANKFURT, July 8 (Reuters) - Media group Bertelsmann [BERT.UL] plans to speed growth of its music rights management business by forming a joint venture with the private equity firm Kohlberg Kravis Roberts & Co [KKR.UL].

Bertelsmann will contribute its BMG Rights Management music rights unit, whose catalogue includes the work of Kylie Minogue and Roy Orbison, and own 49 percent in the joint venture, which is set to run for five years, the two companies said on Wednesday.

KKR will invest 50 million euros ($69.6 million) to finance near-term growth and would commit to invest an additional 200 million euros over the coming years to finance possible acquisitions, a spokeswoman said.

“With access to meaningful investment capital, we expect the partnership with KKR to contribute significantly to accelerating the development of the business,” Bertelsmann Chief Financial Officer Thomas Rabe said in a statement.

“This way we will be able to actively participate in the expected market consolidation,” added Rabe, who is also chairman of the joint venture.

Bertelsmann would also be willing to contribute capital to help grow the business, whose staff will grow to around 100 in the mid-term from 30 at first.

Reports of the deal in the German press had speculated that such a venture could look for acquisition targets such as EMI Group’s music publishing assets. EMI is owned by British private equity firm Terra Firma [TERA.UL].

A person familiar with the thinking at both companies told Reuters: “That will definitely be looked at.”

Both Bertelsmann and KKR said interest focused on small rights catalogues.

The deal could be a more efficient way of managing rights under one roof, and would mark a more aggressive push into the music business for the privately held German media conglomerate, which has largely exited the industry.

Bertelsmann pulled out of a recorded music joint venture with Sony Corp (6758.T) in August 2008 and sold its music publishing business in 2006 to Universal for 1.63 billion euros. At the time, KKR had been one of the bidders for the business.

However, in October it announced plans to build a new music rights business called BMG Rights Management.

It launched that business with a selection of European music catalogues retained from the venture with Sony, which included about 200 artists such as the Scorpions and Terence Trent D‘Arby, the company has previously said.

It has since added around 100 artists.

Bertelsmann’s Hartwig Masuch, an old hand in the music industry and head of BMG Rights Management, will continue as chief executive of the new company.

The deal marks the latest in a string of investments made by pension funds and private equity firms into high-profile music assets.

Investors are attracted by catalogues of published songs that provide steady, recurring cash flows as CD sales rapidly decline and music piracy hits profits in the music industry.

Dutch fund ABP, the world’s third-largest state pension fund, earlier this year bought the legendary Rodgers & Hammerstein catalogue of songs. ABP also owns music catalogues that include rights to some songs by Michael Jackson -- and demand for music by the “King of Pop” has rocketed since his death.

A separate deal saw private equity firm Pegasus Capital pay an estimated $55 million for Spirit Music Group, a song publisher with rights to some of the works of artists ranging from Frank Sinatra to Madonna. (Reporting by Alexander Huebner in Frankfurt, Megan Davies and Yinka Adegoke in New York; Writing by Nicola Leske, editing by Will Waterman)

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