May 19, 2024

Media Decoder Blog: In EMI Bid, Universal Considers a Sale

To get European regulators to approve its $1.9 billion takeover of EMI, the Universal Music Group may do something once considered unthinkable: sell Parlophone Records, which releases the music of Coldplay and Radiohead and is the heart of EMI’s holdings in Europe.

According to a report in The Financial Times late Thursday that was corroborated by one person briefed on the talks, executives from BMG Rights Management, a music company backed by Bertelsmann and Kohlberg Kravis Roberts, have met with Universal over a possible sale of Parlophone. Representatives for Universal, EMI and BMG all declined to comment.

The fact that Parlophone is on the table is a sign of how troubled Universal’s talks with the European Commission have become. Universal, whose global market would swell to more than 40 percent if it absorbed EMI, entered the talks two weeks ago hoping it could gain the commission’s approval by offering to sell European rights to a relatively small number of songs. After its early offers were found inadequate, Universal looked to sell off independent labels that EMI had acquired over the years, like Virgin, Chrysalis and Mute. In its latest strategy, Universal is considering keeping those smaller labels and selling Parlophone.

In an interview this week with Dow Jones, Joaquín Almunia, the European competition commissioner, described the talks with Universal as being “very tough.” Last month, the commission sent Universal a nearly 200-page “statement of objections” that reportedly rejects many of Universal’s central arguments in favor of the merger.

While any Parlophone deal would most likely include the bulk of its extensive catalog, it would exclude EMI’s ultimate jewel, the Beatles, according to The Financial Times’s report and the person briefed on the talks, who was not authorized to speak publicly about it. Parlophone’s artists include stars like Kylie Minogue, Blur, Gorillaz and the Verve. The label also handles the European releases for other acts signed to EMI’s American branches, like the Beastie Boys, but it is unlikely that a sale would include rights to those artists’ music.

Peeling off Parlophone could have an adverse effect on the value of Universal’s overall deal for EMI. Universal assumed all regulatory risk in the transaction, agreeing to pay about 90 percent of the full sale price by September, whether the deal is approved by regulators or not. If Universal is forced to sell big pieces of EMI for less than it paid, and also loses some of the $157 million it expected in annual savings, the deal could end up far more expensive for Universal.

Universal has until Wednesday to make its formal submission of remedies to the European Commission, although it may do so earlier. Its proposal will then go through “market testing” with competitors, and the commission will have until Sept. 27 to make a final ruling.

In the United States, the Federal Trade Commission is investigating the deal.

Ben Sisario writes about the music industry. Follow @sisario on Twitter.

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DealBook: Formula One May Delay $3 Billion I.P.O. in Singapore

The current Formula One racing season kicked off in March and has already included races in Malaysia and other countries.Diego Azubel/European Pressphoto AgencyThe current Formula One racing season kicked off in March and has already included races in Malaysia and other countries.

HONG KONG–The Formula One Group’s plans for a $3 billion Singapore listing may be delayed, a person with direct knowledge of the matter said on Friday, after three other initial public offerings in Asia were pulled this week.

Formula One, the London-based racing group headed by the 81-year-old billionaire Bernie Ecclestone, looks to have become the latest victim of an increasingly hostile turn in the global market for I.P.O.’s.

Formula One started preliminary marketing of the deal to institutional investors two weeks ago, with the goal of listing on the Singapore stock market by the end of this month, another person with knowledge of the plans had previously said.

‘‘The company is continuing to talk to investors,’’ the first person said Friday, speaking on condition of anonymity. ‘‘In the last few days, the market has obviously been pretty bad.’’

Formula One had not formally kicked off its listing by taking share orders, and based on comments made Thursday by Mr. Ecclestone, it appeared unlikely that it would do so any time in the immediate future.

‘‘My feeling is it’s probably a better idea to get everything ready and then go ahead at two months’ notice when the markets have settled down,’’ Mr. Ecclestone said, according to Bloomberg News.

‘‘There’s no rush, the markets aren’t good at the moment, it doesn’t inspire people,’’ he told the news agency on Thursday. ‘‘We don’t have to do it now.’’

On Thursday, Graff Diamonds pulled an I.P.O. in Hong Kong that had been planned to raise $1 billion, citing slumping markets that were a ‘‘significant barrier’’ to getting the deal done. Graff, a top-end gemstone retailer, had planned to price its offering on Friday and begin trading next week.

Earlier this week, two other Chinese companies withdrew plans for share offerings in Hong Kong that would have raised up to $750 million between them. China Nonferrous Mining, which has copper mines in Zambia, canceled plans for a listing on Wednesday, while the luxury car dealer China Yongda Automobile Services said Monday that it was pulling its $432 million I.P.O. because of ‘‘the recent deterioration of the equity market.’’

Formula One’s offering would have been the biggest in Asia in the year to date, and the second biggest globally after Facebook’s $16 billion Nasdaq listing last month.

Including the pulled Graff offering, $13.6 billion worth of I.P.O.’s have been withdrawn or postponed globally in the year to date, according to data from Dealogic. In Asia, 41 deals worth $3 billion have been pulled or postponed so far this year, compared with 40 deals worth $2.7 billion during the same period a year ago.

Formula One hired Goldman Sachs, Morgan Stanley and UBS as the lead coordinators of its share offering.

The controlling shareholder, CVC Capital Partners, the private equity firm based in London, said on May 22 it had sold a 21 percent stake in the racing group for $1.6 billion to Waddell Reed, Norges Bank and BlackRock. CVC retains a 42 percent stake in the company.

Formula One has sought to expand its fan base across Asia by staging six of its 20 races this year in the region. The current racing season kicked off in March and has already included contests in China and Malaysia, with stops in Singapore, Japan, South Korea and India coming later in the year.

The company, which makes money by managing the commercial rights related to the sport, employs 200 people and last year booked revenue of 1.17 billion euros ($1.5 billion). In March, Formula One refinanced $1.8 billion in debt. In light of that restructuring, and in anticipation of proceeds from the planned I.P.O., Standard Poor’s had put the racing group on watch for a credit rating upgrade.

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DealBook: J.&J. to Buy Synthes for $21.3 Billion

Johnson Johnson said on Wednesday that it had agreed to buy the medical equipment maker Synthes for $21.3 billion in cash and stock, in one of the biggest deals ever in the health care sector.

Johnson Johnson is offering 159 Swiss francs ($181.30) a share for Synthes, a Swiss-American company that manufactures bone implants and surgical tools, and specializes in treatments for trauma.

The bid is comprised of 55.65 francs in cash and 103.35 francs worth of Johnson Johnson common stock. It represents a 22 percent premium over the 130.60 francs that Synthes was trading at on April 14, before reports of the deal first emerged.

“It’s a pretty fair price,” said Lisa Bedell Clive, an analyst at Sanford C. Bernstein in London. “For J.J. it’s a great deal. Trauma is one of the few med-tech markets where they haven’t had a top-three business.”

Both companies’ boards have unanimously approved the transaction, and a group of shareholders, led by the Synthes founder and chairman, Hansjörg Wyss, and other directors, have pledged to vote their shares in support of the deal, the companies said.

Mr. Wyss controls 47 percent of Synthes, a stake that will be worth slightly more than $10 billion when the deal closes. In the companies’ statement, he said he was pleased to see his “life’s work will continue as part of Johnson Johnson.”

His support for the deal, combined with the size of his stake, make it unlikely that shareholders pushing for a higher price would be able to block the bid.

“All the shares we have are totally in favor of the transaction,” Mr. Wyss said during the conference call.

Synthes will be merged with the Johnson Johnson unit DePuy Companies to become the group’s largest medical devices business, specializing in orthopedics.

“Orthopedics is a large and growing $37 billion global market and represents an important growth driver for Johnson Johnson,” William C. Weldon, head of Johnson Johnson, said in the statement.

The deal, which will be Johnson Johnson’s largest ever, is expected to close in the first half of next year, pending the approval of regulators in the United States and Europe, as well as Synthes shareholders.

In acquiring Synthes, Johnson Johnson will be combining the second- and third-largest businesses for spine-related implants worldwide, which could draw the attention of regulators and require a divestment.

“Antitrust authorities look at this on a product line by product line basis,” Ms. Clive said. “It could happen that they’ll let this go untouched,” she added.

“We don’t believe that there will be any required divestitures,” Alex Gorsky, vice chairman for Johnson Johnson, said during a conference call, “but if there are, we don’t think they will material-impact the transaction.”

The deal is set to have a “modestly dilutive impact” on Johnson Johnson’s earnings per share, the company said.

Johnson Johnson hired Goldman Sachs as its financial adviser, and Cravath, Swaine Moore as counsel, while Synthes hired Credit Suisse as adviser, and Shearman Sterling as counsel.

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