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Media Decoder Blog: Bertelsmann Acquires Full Control of BMG Music Company

March 1, 2013 by Leave a Comment

Five years after its last exit from the music industry, Bertelsmann will take control of its restarted music company, BMG Rights Management, in a deal that values BMG at $1.4 billion. The company announced early Friday that it was buying the 51 percent stake of BMG owned by its partner, Kohlberg Kravis Roberts.

The companies did not comment further on the deal, which is expected to close in the first half of the year. But a person with direct knowledge of it, who spoke on condition of anonymity because the terms were confidential, said the purchase price was between $700 million and $800 million, including debt.

“We are bringing the music home to our group,” Thomas Rabe, the chairman and chief executive of Bertelsmann, said in a statement. “A few years after our exit from the traditional music business, in association with KKR, we have succeeded in building the world’s fourth- largest music rights management business.”

The deal signals a full return to the music business for Bertelsmann, the German media giant that also owns Random House and the magazine publisher, Gruner + Jahr. After building BMG into a global powerhouse in the 1980s and 1990s, Bertelsmann sold most of its music holdings through a series of deals with Sony and Universal in the mid-2000s. Then it restarted BMG in 2008.

With $270 million invested from KKR, BMG then made a string of acquisitions, mostly in music publishing, the side of the business that deals with the copyrights for songwriting and is seen as less vulnerable to the marketplace changes that destabilized the recorded music industry.

“We saw that music was going to make a comeback,” said Philipp Freise, a KKR partner who led the firm’s investment in BMG. “Everybody said music was going to die, but we said music will not die — it will grow.”

BMG quickly built a catalog of more than one million songs by musicians ranging from Johnny Cash and Quincy Jones to Duran Duran and Will.i.am of Black Eyed Peas. It has also bought some recorded music assets, but lost out on recent major label auctions, including the Warner Music Group in 2011 and the Parlophone Label group, part of EMI, earlier this year.

Mr. Rabe has said that he expects BMG’s annual revenue to grow to more than $640 million in the next four to five years, up from about $390 million in 2012.

Hartwig Masuch, the chief executive of BMG, said in an interview on Friday that with Bertelsmann as its sole owner, the company could be “more aggressive moving forward” in developing its business, particularly with more recorded music rights.

“What we initially envisioned for BMG was an integrated rights company based on nontraditional models,” he said. “The old world was about complex distribution structures. Now you can license multiple users and distributors. The key is not infrastructure but how good are you at monetizing and accounting for those rights.”

Article source: http://mediadecoder.blogs.nytimes.com/2013/03/01/bertelsmann-acquires-full-control-of-bmg-music-company/?partner=rss&emc=rss

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U.S. Firms See Europe Woes as Opportunities

December 26, 2011 by Leave a Comment

The sales are being spurred on because European banks are scrambling to raise capital and shrink their balance sheets, often under orders from regulators. European financial institutions will unload up to $3 trillion in assets over the next 18 months, according to an estimate from Huw van Steenis, an analyst with Morgan Stanley.

This month a team of three bankers from the London office of the buyout giant Kohlberg Kravis Roberts headed to Greece to examine a promising private company that cannot get Greek banks to provide credit for future growth. The Blackstone Group agreed to buy from the German financial giant Commerzbank $300 million in real estate loans that are backed by properties, including the Mondrian South Beach hotel in Florida and four Sofitel hotels in Chicago, Miami, Minneapolis and San Francisco. Commerzbank is under pressure from regulators to raise 5.3 billion euros ($6.9 billion) in new capital by mid-2012.

Google too saw an opportunity. It bought the Montevetro building in Dublin this year from Ireland’s National Asset Management Agency, which acquired it after a huge bank rescue by the Irish government.

“There is clearly a restructuring and shrinking of European financial institutions,” said Timothy J. Sloan, chief financial officer of Wells Fargo, which last month acquired $3.3 billion in real estate loans from a bank in Ireland. “And many of the assets they’re shedding are in the United States.”

He added, “We’re keeping our eyes and ears open for the right situations.”

American financial firms are taking the plunge in a troubled Europe despite problems of their own. In the last quarter, JPMorgan Chase, which has taken hits to its earnings, increased its total loans to European borrowers.

At Kohlberg Kravis, Nathaniel M. Zilkha, co-head of the special situations group, is expanding his London team to eight, from two, and hoping to take advantage of opportunities in Europe. The firm is even considering potential investments in the country where the crisis began, Greece, despite headlines warning of a default by Athens or the possibility that Greece may withdraw from the euro zone.

“If no one is willing to turn over the rocks, that’s when you can make extraordinary investments,” Mr. Zilkha said. “The market dislocation in Greece is creating significant opportunities that wouldn’t be otherwise available.”

Besides Greece, Kohlberg Kravis bankers have also been looking for deals in Spain and Portugal, where private companies are having a similarly hard time winning new credit or extending existing loans.

Ireland, whose banks were devastated by the collapse of a real estate bubble rivaling the one in the United States, also has deep-pocketed American buyers like Google circling.

But in many cases, the assets are much closer to home.

Last month, Wells Fargo bought the $3.3 billion in real estate loans, which are backed by commercial properties in the United States, that had been owned by the former Anglo Irish Bank. Wells has also bought $2.4 billion in loans and other assets from the private Bank of Ireland, which is trying to raise 10 billion euros ($13 billion) after a bailout by the European Union and the International Monetary Fund.

Even with opposition from consumer advocates, Capital One Financial could soon win final approval from the Federal Reserve for its $9 billion acquisition of ING Direct in the United States, one of the year’s biggest banking deals. Based in the Netherlands, ING has been forced by European authorities to divest ING Direct, an online bank, after ING required a $14 billion bailout following the 2008 financial crisis.

Experts expect these kinds of sales to jump as European banks race to meet the June deadline imposed by the European Banking Authority to raise more than 114 billion euros in fresh capital. Financial institutions also have to increase their Tier 1 capital ratio — the strictest yardstick of a bank’s ability to absorb financial blows — to 9 percent of assets.

Article source: http://feeds.nytimes.com/click.phdo?i=178b59bff7ff393eb27d57098c59fee1

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DealBook Column: Mitt Romney’s Run Puts Spotlight on Private Equity

December 13, 2011 by Leave a Comment

Mitt Romney at Bain Capital in 1993. Mr. Romney has largely avoided getting into the details of the private equity business.David L. Ryan/The Boston GlobeMitt Romney at Bain Capital in 1993. Mr. Romney has largely avoided getting into the details of the private equity business.

On Wednesday, Mitt Romney, the Republican candidate for president, will attend fund-raisers in Manhattan given by his former private equity peers and Wall Street bankers, putting the spotlight on the private equity industry and Mr. Romney’s role in it.

Mr. Romney, a co-founder of Bain Capital, will spend time at the sprawling Park Avenue apartment of his former rival and sometime deal partner, Stephen A. Schwarzman, the co-founder of the Blackstone Group. He will also be toasted at the Waldorf Astoria by James B. Lee Jr., vice chairman of JPMorgan Chase, who helped orchestrate many of the private equity industry’s biggest deals, along with a smattering of other senior executives from the bank.

(Jamie Dimon, the bank’s chief executive and a longtime Democrat, will not be among them; as a board member of the Federal Reserve Bank of New York, he is prohibited from raising money for political candidates, and it is still unclear which candidate he will support.)

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While the fund-raisers are likely to generate many thousands of dollars and galvanize support among Mr. Romney’s former peers, they may also give an opening to critics like the Occupy Wall Street movement.

Already, Americans United for Change, a pro-union Democratic group, has begun a campaign comparing Mr. Romney to Gordon Gekko, the Michael Douglas character in “Wall Street.” It has even started a Web site, RomneyGekko.com.

The private equity industry’s titans have long been worried this moment would come — and about the effect Mr. Romney’s presidential campaign will have on the industry.

“If he is a nominee, well, hold your seats,” Henry Kravis, the co-founder of Kohlberg Kravis Roberts, told a room of executives at a dinner in Hong Kong last month, according to Reuters.

“They’re going to describe us all as asset strippers; we’re flippers of assets, we just put on a lot of debt, fire a lot of people and that’s how we make money,” he added. “You know that’s not the case. That’s absolutely not what we do.”

“There is no doubt that the Obama administration will clearly come out after Mitt Romney and the whole private equity industry,” Mr. Kravis said. “Mitt Romney may become the single source of all U.S. unemployment by the time the election happens.”

Stephen A. Schwarzman, a Blackstone Group co-founder.Peter Foley/Bloomberg NewsStephen A. Schwarzman, a Blackstone Group co-founder.

A looming issue for the private equity industry is the tax treatment of what is known as carried interest. Private equity executives pay only the capital gains rate — 15 percent — on most of their income instead of the ordinary income rate, which in their case would typically be 35 percent.

So far, however, Mr. Romney has managed to dodge most efforts to brand him as a true Gordon Gekko. And the private equity industry has managed to avoid becoming the focal point of criticism, which instead has been directed at the Wall Street banks.

The crucial question is whether that will change as the campaign becomes more heated. Already, Republican rivals like Newt Gingrich are seizing on his track record at Bain Capital. On Monday, Mr. Gingrich suggested that Mr. Romney “give back all the money he earned from bankrupting companies and laying off employees over his years at Bain.”

But Mr. Romney appears to have kept a studied distance from the most current Gilded Age. A profile of Mr. Romney in The New York Times on Sunday about his relationship with money described a penny-pinching cheapskate who enjoyed flying on JetBlue and frowned upon ostentatious displays of wealth — hardly the lavish spending habits of some of private equity’s current kingpins. (Mr. Romney does, however, have a soft spot for real estate.)

In truth, while Mr. Romney may be worth several hundred million dollars, he is a pauper next to the founders of the biggest firms since he left the industry in 1999, well before the bubble of the next decade that produced billion-dollar riches.

Mr. Romney’s opponents, of course, have combed through his former deals at Bain looking for tales of excesses and failure. Perhaps the worst deal he worked on — which has been highlighted by several news organizations — was the buyout of Dade International, a medical company, which filed for bankruptcy after Bain had cashed out with $242 million.

But criticism about the Dade deal has not stuck as a true talking point, in part because the details painted a complicated story.

Dade was on the verge of bankruptcy when Bain originally bought the company. While Mr. Romney made cuts at the company, he also invested heavily, turning it into the industry leader. At one point, he pushed back against colleagues who wanted to flip the business for a quick profit and instead directed them to make an acquisition to bolster it.

It was only after Dade had been turned around that Bain and the company’s other investors leveraged the company up even more and paid themselves a huge dividend, saddling the company with too much debt.

Some critics contend that private equity firms are skilled at cutting costs at businesses but can choke off growth with large amounts of debt. In the context of the government’s budget, Mr. Romney’s embrace of streamlining may just be what’s in order, but it still poses political challenges.

Mr. Romney’s former colleagues are quietly waiting to see whether he will try to leverage — pun very much intended — his role at Bain in his campaign or will continue to shy away from it.

While Mr. Romney often invokes his broad experience at Bain, he has typically avoided getting into the details of the private equity business, seemingly to avoid the negative connotation that the industry has for some Americans.

But given the clear bipartisan sense that the United States government is marred by inefficiency and is in need of a turnaround, it will be interesting to see whether he tries to highlight the details of his private equity work as a way to demonstrate how he would run the country.

In 2007, Mr. Romney famously said of his private equity work that “sometimes the medicine is a little bitter, but it is necessary to save the life of the patient.”

Some critics have taken that quotation to suggest he is a heartless mercenary. Others have said that the nation may need a dose of the same kind of medicine.

How well Mr. Romney manages those perceptions may determine whether private equity makes it into the White House.

Article source: http://feeds.nytimes.com/click.phdo?i=37321413d89521662cf5f35353e51e59

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Bids to Buy Citigroup’s EMI Group Are Said to Fall Short of Expectations

October 17, 2011 by Leave a Comment

But five months later, Citigroup’s sale of the EMI Group, one of the three other companies that dominate the world music market, is drawing less confidence. Turmoil in the financial markets has driven away many potential buyers and reduced the number of banks willing to finance bids. And according to several people involved with the auction, bidding prices have been lower than expected.

EMI, which releases recordings by, among others, the Beatles, Coldplay and Katy Perry and has a music publishing division that controls the copyrights of 1.3 million songs, was seized by Citigroup in February after a disastrous four-year ownership by the private equity firm Terra Firma.

After writing down EMI’s debt by $3.5 billion, Citi put the company on the market in June, with expectations among analysts and potential buyers that it might sell for up to $4 billion.

Of the five parties that have bid on all or parts of EMI, four are other big music companies. Warner — whose new owner is the Russian-born investor Len Blavatnik — and the Universal Music Group have made offers for EMI’s recorded music division, along with MacAndrews Forbes, the holding company controlled by Ronald Perelman. Those bids are said to be from $1 billion to $1.3 billion, according to these people, who spoke on the condition of anonymity because they had signed confidentiality agreements.

EMI’s publishing unit has drawn offers of $1.75 billion to $2 billion from Sony and BMG Rights Management, a joint venture between Kohlberg Kravis Roberts and the German media giant Bertelsmann. In addition, some of these companies have made offers for the entire company, but those bids are said to be lower than what Citi would get by splitting the company up.

Those companies declined to comment, as did Citi.

Many analysts say they believe the auction is simply the victim of bad timing. Tightened credit markets have made it more difficult for potential buyers to finance their offers, and nervous banks have required bidders to put up more equity.

“The global economy is in a different place than it was in February or March,” when the Warner auction began, said Ben Rumley, a media analyst with Enders Analysis in London. “Everything you read in the news indicates that it is difficult to raise financing for any business, let alone music. It’s not the greatest time to be looking for debt financing.”

Bidders have also sought to limit their exposure to EMI’s pension liabilities, which by some estimates could be as high as $600 million.

Despite the interest in Warner, there are persistent doubts about the health and investment value of large music companies. Among those concerns are the labels’ ability to shoulder the transition from physical to digital sales. New digital services like Spotify, which sell access to music by subscription, have generated excitement but are not profitable.

“The music market is continuing to contract more quickly than record labels’ digital strategies can offset,” said Mark Mulligan, an independent analyst of the music industry. “For a prospective buyer, that brings the serious consideration of waiting until the market bottoms out and getting most value then.”

Since most of the bidders are other major music companies, the auction faces regulatory complications in the United States and Europe. EMI’s record division is the smallest of the four major companies, with about 9 percent market share. But its publishing division — which controls the copyright for the music and the lyrics underlying songs — is one of the largest and most successful, with about 20 percent market share.

Depending on which company or companies win the auction, that could mean that EMI’s recorded music and publishing halves could be further carved up as a pre-emptive move to satisfy antitrust regulators.

The last round of bids for EMI were submitted to Citi earlier this month, but the people involved with the auction said that the bank had not given an indication of when it would make a decision. These people said that it could take weeks, and that there was still the chance that Citi could postpone the auction until market conditions — and bids — improve.

Article source: http://feeds.nytimes.com/click.phdo?i=35f74ec8dd8e8cb79b6dc3e3793ad0df

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DealBook: Del Monte and Barclays Settle Investor Lawsuit for $89.4 Million

October 6, 2011 by Leave a Comment

Matthew Staver/Bloomberg NewsDel Monte agreed last November to sell itself to Kohlberg Kravis Roberts, Vestar Capital and Centerview Capital for $5 billion.

Del Monte Foods said in a regulatory filing on Thursday that it and Barclays Capital had settled a shareholder lawsuit over the company’s leveraged buyout, paying $89.4 million to resolve claims that the deal was improperly managed.

The settlement, one of the biggest recorded in Delaware’s Court of Chancery, resolves one of the most publicly visible disputes over the financing that accompanies private equity deals.

Known as “stapled financing” within the industry, the practice was increasingly common during the leveraged buyout boom — but led to accusations that banks had conflicts of interests between their private equity clients and the companies they were trying to sell.

Del Monte agreed last November to sell itself to Kohlberg Kravis Roberts, Vestar Capital and Centerview Capital for $5 billion, and the deal closed in March.

But shareholders, led by an Illinois pension fund, accused the company of not running a robust auction process that would have fetched the highest possible price for shareholders.

At the heart of the dispute was Barclays’s role as an adviser to the seller and a provider of financing to potential buyers. Documents unearthed through the litigation showed that Barclays first began shopping Del Monte as an acquisition target to potential buyers, hoping to reap big fees by lending private equity firms money for a deal.

According to the documents, Barclays improperly allowed K.K.R. and Vestar to team up, despite having previously agreed not to.

The plaintiffs drew much of the base for their case from a ruling by Vice Chancellor J. Travis Laster of the Chancery Court, finding that Barclays “materially reduced the prospect of price competition for Del Monte.”

Under the terms of the settlement, Del Monte will pay $65.7 million, while Barclays will pay $23.7 million. Both deny all accusations of wrongdoing.

Stuart Grant, a lawyer for the plaintiffs, said in a statement: “The $89.4 million payment to shareholders, when added to the major changes that have occurred in the investment banking community in response to Vice Chancellor Laster’s injunction obtained earlier in the case, makes this a great result for stockholders, not only those holding shares in Del Monte, but all public equity holders of companies involved in M.A. transactions.”

Kerrie Cohen, a Barclays spokeswoman, said in a statement: “We are pleased that the parties have agreed to settle the litigation to avoid the expense, distraction and uncertainty of litigation. We believe that the sale process leading up to the merger achieved the best price reasonably available for Del Monte stockholders.”

Del Monte and Barclays Settlement With Shareholders

Article source: http://feeds.nytimes.com/click.phdo?i=bb31e0a1a5679406a809d9e5e6103e03

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DealBook: K.K.R. 2nd-Quarter Earnings Fall 25%

August 3, 2011 by Leave a Comment

George Roberts, left, and Henry Kravis, co-founders of Kohlberg Kravis Roberts.Gary SpectorGeorge Roberts, left, and Henry Kravis, co-founders of Kohlberg Kravis Roberts.

Kohlberg Kravis Roberts said on Wednesday that its second-quarter profit fell 25 percent as growth slowed in its main investment businesses.

The private equity giant reported $245.3 million in economic net income after taxes atop $117.6 million in fees. That amounts to an after-tax profit of 36 cents a stock unit; analysts had, on average, expected a profit of 41 cents, according to the market researcher Capital IQ.

Economic net income is a nonstandard profit measure used by publicly traded private equity firms that excludes some stock-based compensation costs. On a generally accepted accounting principles basis, K.K.R. earned $39.6 million for the quarter.

The firm said assets under management grew to $61.9 billion. Much of that growth resulted from an increase in the value of K.K.R.’s investments, as well as from newly raised capital.

“In an increasingly challenged global economic environment, our business continued its growth trajectory across all segments,” Henry R. Kravis and George R. Roberts, the firm’s co-founders and co-chairmen, said in a statement.

K.K.R.’s second-quarter performance trailed that of its main rival, the Blackstone Group, which more than tripled its profit for the period, thanks to its huge real estate arm.

Since becoming a public company, K.K.R. has focused on building up its operations outside of its core leveraged buyout business. The firm has raised billions of dollars for energy and infrastructure investments, and it has bolstered its nascent credit trading division.

Still, K.K.R. pointed to successes in its traditional private equity business. The unit increased assets under management to $47.1 billion, offset by payments made to its investors through the sales of portfolio companies and assets.

Article source: http://feeds.nytimes.com/click.phdo?i=3f62cdb0cc5036e4e76f518b55176adb

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DealBook: Hershey Chief Leaves to Run Del Monte

May 19, 2011 by Leave a Comment

David J. West is leaving Hershey, where he was chief executive, to run Del Monte Foods.Hershey via Bloomberg NewsDavid J. West, Hershey’s chief executive, is leaving to run Del Monte Foods.

5:33 p.m. | Updated

The chief executive of Hershey, David J. West, is leaving the publicly traded chocolate maker to run the privately held Del Monte Foods.

Hershey announced the departure of Mr. West on Wednesday. The company appointed John P. Bilbrey, currently the chief operating officer, as the interim chief.

“We’re pleased that J.P. has accepted this position,” James E. Nevels, Hershey’s chairman, said in a statement. “He has worked closely with the board for several years and has been involved in all aspects of the company’s strategy and operations.”

Mr. West, who was named to the top spot at Hershey in 2007, will lead a smaller company in Del Monte. Last year, Hershey reported sales of $5.67 billion and net income of about $510 million. In its last fiscal year, Del Monte generated revenue of $3.7 billion.

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Del Monte’s business has also been struggling. Revenue dropped 1.9 percent in the latest quarter for which the company reported financial results. Operating income improved modestly, to $148 million, from $140.6 million in the period a year earlier.

In March, a group of private equity investors, including Kohlberg Kravis Roberts, Vestar Capital Partners and Centerview Partners, bought Del Monte for more than $5 billion, including debt. The deal had been previously criticized in court for the cozy relationship between the bankers and the private equity players. A state judge, in an opinion, said Barclays had “secretly and selfishly manipulated the sale process,” with the help of K.K.R.

Current and former executives at public companies have a long history of moving to private equity firms or their portfolio companies, which offer the lure of riches without the demands of shareholders. In 2006, the parent of Nielsen Media research, a Dutch company owned by K.K.R., hired David Calhoun, then a vice chairman at General Electric.

Some executives serially switch between public and private companies. In 1989, K.K.R. chose Louis V. Gerstner Jr., then a president at American Express, to head RJR Nabisco, the buyout of which was immortalized in the book “Barbarians at the Gate.”

Four years later, Mr. Gerstner became chairman of the publicly traded I.B.M. After retiring from the computer maker, he went back into the private equity world, becoming chairman of the Carlyle Group in January 2003. He now serves as a senior adviser to Carlyle.

Article source: http://feeds.nytimes.com/click.phdo?i=27ff87d3734c2493a33e24e4f30645e3

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DealBook: After Stellar Year, Bertelsmann Thinks Deals

March 30, 2011 by Leave a Comment

Bertelsman

3:43 p.m. | Updated

BERLIN — Bertelsmann, the German media conglomerate, said Tuesday that it was interested in buying the music publishing arms of the Warner Music Group and EMI, adding that a surge in profitability and a reduction in debt had made it eager to invest again.

For the most part, Bertelsmann got out of the music business less than three years ago, when it sold its 50 percent share in Sony BMG, one of the four major record companies, to Sony. Since then, however, the company has been building a new music rights management operation with the private equity firm Kohlberg Kravis Roberts.

Warner Music was recently put up for sale. EMI has been taken over by Citigroup from its private equity owner, Terra Firma. The takeover followed a failed lawsuit by Terra Firma against the bank, its main lender and adviser in the EMI deal. Citigroup has not put EMI up for sale, but analysts say the bank is unlikely to want EMI for the long term.

With sales of compact discs continuing to fall, the record industry’s prospects have not improved since Bertelsmann sold out to Sony. Thomas Rabe, Bertelsmann’s chief financial officer, said the company was interested only in the publishing and rights management operations of EMI and Warner. Those businesses, which own the companies’ back catalogs, continue to generate steady income.

“We are on the right track to become one of the biggest and best-managed music rights businesses in the world,” Mr. Rabe said at a news conference. “We are on the right track to do this through organic growth and further acquisitions.”

Bertelsmann said it was ready to consider acquisitions again because it had reduced its debt to 1.9 billion euros, or $2.7 billion, from 2.8 billion euros over the past year. Meanwhile, the company, which is privately held, benefited from a rebound in the media sector, with profit surging to 656 million euros last year from 35 million euros a year earlier. The company’s European television and radio broadcasting business, RTL, and its German publishing arm, Gruner Jahr, posted particularly strong gains.

“Bertelsmann, ladies and gentlemen, is ready to invest — in the right business, at the right price and the right time,” said Hartmut Ostrowski, the company’s chief executive.

The Bertelsmann/K.K.R. venture is not the only party interested in Warner. Other potential bidders reportedly include Len Blavatnik, a Russian-born investor, and Ron Burkle, an American supermarket owner. And EMI executives have said they want to keep the company’s recorded music and publishing arms together.

Article source: http://dealbook.nytimes.com/2011/03/29/after-stellar-year-bertelsmann-thinks-deals/?partner=rss&emc=rss

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