"While the exercise of this option will undoubtedly be a surprise to many in the music industry, this is a natural culmination of many years of close business ties and a complex series of agreements negotiated 12
years ago."
——Clive Calder


Zomba Chief Exercises Option for Bertelsmann to Acquire His Music Division in Deal of the Century
Britney Spears, Backstreet Boys, NSYNC, Mystikal and R. Kelly should brush up on their German. They’ve got a new master.

Zomba Music Group ruler Clive Calder said his company has exercised its option for its remaining shares to be acquired by Bertelsmann’s BMG Music.

The deal enables BMG to snap up the 80% of Zomba’s record division, with its cornerstone label Jive Records, and the 75% of its music publishing division it did not already own. Terms of the agreement have not been disclosed, but sources place the price tag in the $3 billion range.

The surprise news comes as Bertelsmann’s put option to purchase the parts of Zomba it did not already own was slated to expire in December 2002. Jive Records, which had become known as the home of teenpop, has been on a chilly streak lately, topped off with last week’s R. Kelly child-pornography scandal. Zomba Music Group has seen its marketshare drop from a high of around 6% to its current YTD 3.4%, of which Jive represents 2.4%.

The Jive group also includes the Silvertone and Volcano labels. Along with Volcano’s Tool, the jewel in the crown could well be teenpop star Aaron Carter, who is huge with the Disney set. Other assets are rapper Too Short and perennial sellers Michael Bolton and Weird Al Yankovic. In addition, the Zomba Group owns the world’s leading gospel label, Verity, and one of the three largest Christian-music groups in Provident.

Concern is focused on how Zomba and BMG will be integrated and whether Calder will assume a hands-on role. Calder and BMG brass have a longstanding relationship, and high-level insiders agree that if he did join the mix, it would be a smooth transition. Wonderers wondering if a Calder employment contract is part of the deal.

The business relationship between Zomba and Bertelsmann dates back to the early ’80s, when the Jive label launched as the BMG-distribbed home for such early hit artists as Billy Ocean, A Flock of Seagulls and DJ Jazzy Jeff & the Fresh Prince. BMG acquired a 25% stake in Zomba’s music-publishing division in 1991 and 20% of its record division in 1996, at which time it negotiated for the put option it has just exercised.

BMG Music is currently the smallest of the five major music companies, and its leadership obviously believes its acquisition of Zomba’s music interests considerably strengthens its global position.

"With its outstanding executives and creative talent, Zomba should add a lot of value to Bertelsmann’s BMG music division," said Zomba Chairman/CEO Clive Calder. "This is a natural culmination of many years of close business ties and a complex series of agreements negotiated 12 years ago. In fact, you know anyone who can change deutschmarks into gold bullion?"

Said Bertelsmann Chairman/CEO Thomas Middelhoff: "Over the years, I have admired Zomba’s impressive results, which are perhaps the most spectacular in the industry. We are very excited about its future prospects, and it will definitely strengthen our music business."

The actual transaction is expected to close later this year. Both companies have agreed not to comment further about the pending acquisition because of the ongoing legal and regulatory process.