Sony does music solo as Sony BMG disbands

By Nicola Leske and Kiyoshi Takenaka

FRANKFURT/TOKYO (Reuters) - Sony Corp agreed to buy Bertelsmann's 50 percent stake in their Sony BMG music joint venture for around $900 million, ending a four-year venture that never managed to beat the music industry's woes.

Sony said in a statement on Tuesday Bertelsmann will also get $300 million of the cash on Sony BMG's balance sheet, valuing the deal at around $1.2 billion, though the value to Bertelsmann, including tax breaks, is higher.

The music company -- the world's second-largest after Vivendi unit Universal -- will now be called Sony Music Entertainment Inc (SMEI) and become a wholly owned subsidiary of Sony Corporation of America, subject to regulatory approval.

Recording artists at SMEI will include Celine Dion, Alicia Keys, Bruce Springsteen, Justin Timberlake, Usher and Jay Chou.

According to Pali Research, the deal values Sony BMG at about 4.5 times 2008 estimated 2008 earnings before interest, tax, depreciation and amortization (EBITDA).

Pali's analysts estimate that rival Warner Music trades at 7.0 times 2008 EBITDA, or 4.6 times excluding its publishing business to make a fair comparison with Sony BMG.

In August 2004, Germany's privately owned Bertelsmann teamed up with Japan's Sony to create the venture -- which includes labels such as Arista Records and Zomba -- to save costs amid a decline in album sales worldwide.

In 2007, global recorded music sales took an 8 percent dive to $19.4 billion, according to music industry body IFPI, as CDs are overtaken by digital forms of music distribution. Sony BMG slumped to a net loss of $49 million in the April-June quarter from a $21 million profit a year earlier.

DECLINING TREND

Industry analysts were not clear on Sony's reasons for buying the stake but did not condemn the move.

"Sony BMG is a company whose sales have been on a declining trend. But it has managed to post profits so far thanks in part to its restructuring efforts," Daiwa Institute of Research analyst Kazuharu Miura in Tokyo said.

"There is no reason to see this as particularly negative. But I don't think this is something that prompts investors to chase Sony shares, either," the analyst added.

A Sony spokesman in Tokyo said the electronics maker expects the transaction to be completed later this year but declined to comment on how the deal would affect Sony's earnings.

Sony added that it saw net cash costs of around $600 million as it did not consolidate Sony BMG's cash.

For Bertelsmann, the strategy is clear. Chief Executive Hartmut Ostrowski has said divisions that were not meeting their targets would be sold as Bertelsmann was focused on growth.