EU Approves Sale of Zomba Music to BMG

By | September 4, 2002 at 12:00 AM

Zomba Music, the record label of Britney Spears and ‘N Sync, won European regulatory approval on Monday for its purchase by Bertelsmann Music Group.

The European Commission said that BMG, part of German media giant Bertelsmann, could buy the U.S. record company in a deal that public records show is worth nearly $3 billion.

“The transaction will result in relatively small increases of BMG’s market shares which will not significantly alter the competitive structure of the European music market,” the Commission said in a statement.

The deal, announced in June, could boost BMG to one of the world’s top three music companies.

BMG will acquire such top acts as the Backstreet Boys, crooner Michael Bolton and rapper Mystikal as well as a library including blues legend Buddy Guy.

BMG, which numbers in its own roster pop stars Alicia Keys and Pink, is last among the top five music companies. The other four are EMI Group Plc, AOL Time Warner Inc., Vivendi Universal and Sony Corp..

The Commission said that the activities of the big five range from signing artists to distributing music. They also work internationally and have large back catalogs, while most independent labels focus on special segments of the market and let the majors or others distribute their music.

The Commission said the main impact of the deal would be in Germany and Britain, but that Universal is still the leader in those countries and EMI’s market share is similar to that of BMG and Zomba combined.

BMG already owns 25 percent of Zomba’s music publishing division and 20 percent of its record division. Zomba exercised an option to sell BMG the shares, which Bertelsmann said in its annual report was worth about $3 billion.

Zomba was founded in 1975 by Clive Calder, now 55. He was central to discovering and developing its top acts.

Zomba is privately held but analysts estimate that it makes a profit of about $300 million on $1 billion of sales.

By contrast, BMG has historically suffered some of the lowest margins after years of management in-fighting, a dearth of hits and monster losses.

Bertelsmann has had a $6.75 billion cash pile from the sale of its investment in AOL Europe. Much of the money went to buy out a partner in pan-European broadcaster RTL Group as well as Zomba.

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