(Adds details, background, reaction)
By Kate Holton and Chris Wills
LONDON, June 15 (Reuters) - Universal Music Group (VIV.PA) has agreed to buy struggling British rival Sanctuary SGP.L for 44.5 million pounds ($88 million) to develop its merchandising, live agency and artist management businesses.
Universal unit Centenary Music Holdings said on Friday it had offered 20 pence per share for Sanctuary, which manages artists James Blunt and Elton John and markets merchandise for over 30 big-name acts including Oasis and The Who.
It also handles live events for over 350 artists including Avril Lavigne, Amy Winehouse and James Morrison.
Artist management, live booking and merchandising is a growth area within the industry and the acquisition will help diversify Universal’s revenues, already the world’s largest music group by sales.
“The Sanctuary business will be a good strategic fit for us,” Doug Morris, chairman and chief executive of Universal said. “The union with Universal’s global strength and leadership will further develop Sanctuary and its talent on the international music stage.”
Analysts at Citigroup said Universal owner Vivendi could now be in a position to roll the music artist management service out more fully.
Sanctuary formed when Rod Smallwood met Andy Taylor at Cambridge University in the late 1970s and they started working together to manage up-and-coming heavy metal group Iron Maiden.
The stock traded at nearly 37 pounds in 2000 but has struggled since mid-2005 due to delays at loss-making Urban Records, which it bought in 2003 from Mathew Knowles, father of R&B singer Beyonce.
“The past few years have proved to be a very difficult time for Sanctuary and a very disappointing one for its shareholders,” Sanctuary Chairman Robert Ayling said.
“(The) acquisition ... can allow the Sanctuary business to benefit from the already well-established relationships between Sanctuary and Universal and from a more supportive capital structure, which is in the future interests of artists and employees.”
It said its recorded division had suffered reduced revenue reflecting the adverse trading conditions which are affecting the entire recording industry.
The group made a loss after taxation in the six months to end March 2007 of 6.6 million pounds, compared to a loss of 26.7 million in the first half of the previous year.
However, revenue fell to 63.7 million pounds for the period compared to 65.9 million pounds a year ago. Net debt rose to 59.8 million pounds.
The music industry has seen a spate of deals in recent years as companies struggle with the growth of digital sales and Internet piracy.
Britain’s EMI EMI.L has agreed to a 2.4 billion pounds takeover from private equity group Terra Firma and rival Warner Music Group WMG.N could still make a counter bid. A separate deal between Sony (6758.T) and music group BMG [BERT.UL] is still awaiting approval by European regulators.