Bertelsmann to Buy Full Ownership of BMG Rights From KKR

Bertelsmann SE, Europe’s largest media company, agreed to acquire full ownership of BMG Rights from partner KKR & Co. as it seeks to boost income from music and other non-print assets.

The takeover of New York-based KKR’s 51 percent stake in BMG Rights will probably be completed in the first half pending antitrust approval, Guetersloh, Germany-based Bertelsmann said in a statement today. Bertelsmann is paying an amount of low- to mid-three-digit million euros and will take on some BMG debt, spokesman Christian Steinhof said by telephone.

“Bertelsmann has managed to basically get themselves back into the music business in a very major way,” said Mark Mulligan, founder of U.K.-based Midia Consulting. “We talk about a very substantial share of the market, but they still need to be doing a lot more growing.”

Thomas Rabe, Bertelsmann’s chief executive officer, has been looking for acquisitions to reduce the company’s dependence on Europe and the shrinking advertising market for newspapers and magazines. In an interview today, the CEO forecast BMG Rights’s revenue will grow to 500 million euros ($649 million) in the next four to five years, compared with about 300 million euros in 2012.

“The new shareholder structure shows artists that BMG isn’t just a fleeting phenomenon,” Rabe said. “We’re now seeing eye to eye with the three big players.”

Full Circle

BMG holds the rights to more than one million songs, including works by Duran Duran and Johnny Cash. It ranks behind Vivendi SA’s Universal Music Group, Sony Music Entertainment and Warner Music Group Corp.

Bertelsmann’s buyout of Berlin-based BMG Rights shows the German media giant coming full circle into the music business, after initially selling its recorded music unit to Sony Corp. for $900 million in 2008. Shortly after BMG Rights was formed with the KKR partnership, the venture made its first purchase in July 2009 of the Los Angeles-based Crosstown song catalog.

KKR continues to be interested in in all content-right categories in Europe after exiting BMG, the firm’s only investment in this area, Philipp Freise, partner and head of European media investments of KKR, said by phone.

“It’s a theme that KKR is actively pursuing to invest in content, in rights and digital media, and do it in partnership with large corporates or entrepreneurs,” he said. “On traditional media, we believe opportunities lies in market consolidation.”

RTL Stake

Separately, Bertelsmann is selling a stake in the RTL Group SA broadcasting unit, with a market value of 1.9 billion euros, to help fund acquisitions.

Hartwig Masuch, who will receive a five-year contract extension as BMG Rights’ CEO, has been shopping for cheaper publishing assets that traditional music companies didn’t have the expendable cash to pay for.

BMG Rights emerged as a key bidder in the past years for Warner Music assets and in the breakup of EMI Group Ltd. In recent months BMG won bids for former EMI labels Sanctuary and Mute, home to Black Sabbath, Iron Maiden and Depeche Mode.

“We will operate this business for the long term to actively expand it,” Thomas Hesse, the Bertelsmann executive who oversees the business, said in the statement.

Bertelsmann is taking on mid-three-digit million euros in debt in addition to the purchase price, Steinhof said. The acquisition will result in a book gain exceeding 100 million euros as Bertelsmann consolidates BMG’s equity, he added.

JPMorgan Chase & Co. is advising Bertelsmann on the deal, while Citigroup Inc. is KKR’s adviser.