Sony to acquire entire 60.1% stake in EMI Music as it seeks to grow its entertainment portfolio
Sony to buy Mubadala’s EMI Music stake for $1.9bn, becoming world’s top music publisher
Sony agreed to buy a Mubadala-led consortium’s stake in EMI Music Publishing for $1.9 billion (Dh7bn), as it focuses on its entertainment portfolio and capitalises on rapidly growing music streaming services.
The Japanese company’s wholly owned subsidiary, Sony Corporation of America, will purchase Mubadala’s entire 60.1 per cent stake, which gives it access to more than two million songs, from classics by Queen to contemporary hits by Sam Smith and Sia, the companies said in a statement on Tuesday. Mubadala said the EMI deal is based on an enterprise value of $4.75bn.
“We are thrilled to bring EMI Music Publishing into the Sony family and maintain our number one position in the music publishing industry,” Kenichiro Yoshida, president and chief executive of Sony Corporation, said. “In the entertainment space, we are focusing on building a strong intellectual property portfolio, and I believe this acquisition will be a particularly significant milestone for our long-term growth."
The Tokyo company will indirectly own about 90 per cent of EMI Music if the deal goes through, and cement its position as the world’s biggest music publisher.
The purchase supports Sony’s forecast that its music division will overtake its semiconductors business in both operating income and net profit for the fiscal year ending March 2019, according to its three-year plan.
The deal seeks to capitalise on the fast-growing streaming music services like Spotify that have spurred a recovery in the music industry.
Google is also cashing in with its own music streaming service, rebranding YouTube Red, which it is splitting into YouTube Music and YouTube Premium.
Music will become the second-largest contributor to operating profit behind games and network services, Sony said. The company expects music profits will be ¥110bn (Dh3.6bn) to ¥130bn by 2021.
“The music business has enjoyed a resurgence over the past couple of years, driven largely by the rise of paid subscription-based streaming services,” Mr Yoshida said. Mr Yoshida, who took over as chief executive in April, has outlined a three-year plan that shifted focus from hardware gadgets as their sales fall towards gaming subscriptions and entertainment.
The transition has already helped the company post record operating profit even as it sold fewer products such as televisions, smartphones, digital cameras and PlayStation consoles.
Yoshida unveiled these mid-term targets on Tuesday for the first time as chief executive, predicting a conservative profit growth across most divisions over the next three years as the company focuses more on content and services. The conservative outlook sent the shares lower.
Sony shares dropped 2 per cent Tuesday in Tokyo, the biggest drop since May 1, a day after the company announced its earnings.
The transaction is subject to closing conditions, including regulatory approvals, Sony said.
The Japanese company will assume EMI Music’s gross debt of about $1.359bn as of March 31. EMI Music posted full-year revenue of $663 million and adjusted operating income of $181m in the fiscal year ending March 31.
“The acquisition will enhance Sony’s intellectual property assets and will be positive for Sony’s profile,” Hiroyuki Nishikawa, primary credit analyst at Standard and Poor’s Global Ratings, told The National by phone from Tokyo. “We expect Sony to maintain its good credit rating based on solid earnings.”
The credit rating agency maintained the company's rating and said its standing would not be affected by the transaction.
"Sony's ample liquidity on hand, solid potential to generate cash flows, and relatively conservative financial policy would allow it to absorb the heavy financing burden and maintain its sound financial standing," S&P Global said in a report.
Earlier this month Sony missed profit estimates and forecast weaker sales across most of its business units. Its shares plummeted the most in nearly two years and the move wiped out about $4bn from the company's market value.
Total operating profit was a record 735bn yen for the year through March. Analysts were projecting, on average, 743bn yen. Full-year sales rose 12 per cent to 8.54 trillion yen.
Mubadala Capital has controlled and managed EMI Music on behalf of Mubadala and other third-party investors since 2012.
“The sale of our consortium’s interest in EMI represents a milestone for Mubadala and our private equity business,” Adib Mattar, head of private equity for Mubadala Capital and chairman of EMI Music Publishing, said.