EMI Is Sold for $4.1 Billion, Consolidating the Music Industry

In a complex sale brokered by Citigroup, the Universal Music Group, a division of the French conglomerate Vivendi, will absorb EMI’s recorded music operations for $1.9 billion, while EMI’s music publishing division will be sold for $2.2 billion to a consortium of investors led by Sony, the companies announced on Friday.

Besides the Beatles, music’s biggest trophy, EMI’s recorded music assets include Pink Floyd, Nat King Cole, Frank Sinatra’s middle period and current stars like Katy Perry and Coldplay. Its labels include Capitol, Virgin and Blue Note.

The sales ended a four-month auction that was slowed by the instability of the international credit markets. Yet prices were higher than many in the music industry and on Wall Street had expected, helping Citi to recoup some of the $5.5 billion it had lent four years ago as part of a disastrous private equity takeover of the label.

The split of EMI completes the biggest shift in music’s corporate structure in almost a decade, reducing the number of major record companies from four to three and allowing Sony and Universal, already the biggest forces in music, to become even bigger.

With Universal and Sony now far outweighing the third major, the Warner Music Group, the competitive landscape of the industry is expected to shift. Warner, which was sold for $3.3 billion in May to the Russian-born investor Len Blavatnik, had offered about $1.5 billion for EMI but dropped out of the bidding two weeks ago over a disagreement about the price.

“From a competitive standpoint it would have been better for the industry if Warner and EMI had merged,” said Jeffrey Rabhan, the chairman of the Clive Davis Institute of Recorded Music at New York University and an artist manager. “You want to have three strong players, not two and a half.”

Universal and Sony’s deals for EMI will be subject to regulatory approvals, and Universal — which already controls about 30 percent of the music sold around the world — may face close scrutiny in Europe. EMI’s market share for recorded music is about 9 percent.

EMI, a British company with roots dating to 1887, has been in financial turmoil since 2007 when Terra Firma, a private equity firm, bought it for $8.4 billion using the $5.5 billion loan from Citi. The bank seized EMI in February after the label defaulted on the loan.

Lucian Grainge, the chairman of Universal, pledged to preserve the British identity of EMI.

“For me, as an Englishman, EMI was the preeminent music company that I grew up with,” Mr. Grainge said in a statement. “Its artists and their music provided the soundtrack to my teenage years. Therefore, U.M.G. is committed to both preserving EMI’s cultural heritage and artistic diversity and also investing in its artists and people to grow the company’s assets for the future.”

In their most recent annual reports, Universal had just under $6 billion in revenue last year, Sony’s music operations $5.7 billion and Warner $3 billion. EMI’s recorded operations had $1.8 billion in revenue and its publishing side $749 million for the year ended March 2010, the last period for which it reported accounts.

Universal said it would finance the deal with its existing credit lines. In apparent anticipation of antitrust challenges, the company said it would sell $680 million in “non-core assets.” When it bought the BMG publishing catalog in 2007, Universal had to sell more than $100 million in assets to secure the approval of the European Commission.

Sony’s bid was financed by a hodgepodge of investors including Blackstone’s GSO Capital Partners unit; Mubadala, the investment arm of Abu Dhabi; Jynwel Capital, from Malaysia; and the media mogul David Geffen. The group was corralled by Robert Wiesenthal, chief financial officer of the Sony Corporation of America. (Music publishing, separate from recorded music, concerns the copyrights for the music and lyrics that underlie every recording.)

Sony’s $325 million investment gives it a minority stake in the venture, which will keep the EMI name. It will be run as an independent unit within Sony by Sony/ATV, the publishing company owned by Sony and the estate of Michael Jackson. “It has been a long process, but something that people have viewed as difficult — the problems in the financial markets — ended up accruing to our benefit,” Mr. Wiesenthal said. “We found long-term investors, who are not just looking at the short-term returns typical of private equity.”

The Sony deal also reunites Martin Bandier, Sony/ATV’s chief executive, with EMI’s publishing division, which he had built into the industry’s leader before he left in 2007. Among the 1.3 million songs controlled by EMI are a catalog of thousands of Motown songs, and it also has deals with many current R. B. and pop songwriters like Alicia Keys and Kanye West.

Some analysts said the disruptions in the music business over the last decade mean that the labels must now justify themselves to generations of artists who have learned to do without them.

“Even with the very large catalogs that these two labels will not have big chunks of, it’s still going to be an interesting challenge to see how they remake themselves in the 21st century,” said Mike McGuire, a media analyst at Gartner. “So many options are available to artists now that the labels are going to have to show, more than ever, their value as this gigantic entity.”

Eric Pfanner contributed reporting.

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