WE HAVE A WINNER

The selling price was £1.2 billion. Citi assumes all liability for pensions ($600m), and all liability for any potential Terra Firma liability. UMG assumes the regulatory risk, but the company believes this should not be issue as combined marketshare will only equal 36% globally (UMG, 27%; EMI 9%; source: IFPI), below the 40% that typically raises the red flag for regulators.

UMG also believes the acquisition is fundamentally pro-competition, according to an inside source. It creates an enlarged company better placed to protect and promote artistic talent in the face of a rapidly changing marketplace dominated by new digital services and piracy.

Neither will it have a negatively impact on the consumer, the source further argues. That’s due to the fact that the record companies are no longer in the driver’s seat when it comes to setting prices, the source reasons. Distributors such iTunes, Google and Amazon are now the principal price setters in today’s market, with a combined 90%+ marketshare in the sector, while major terrestrial retailers are also highly influential in determining price points for products.

At 10:14 EDT on Friday morning (11/11/11), Vivendi and UMG jointly issued the following press release confirming the deal:

Vivendi and its subsidiary, Universal Music Group (UMG), announced today that they have signed with Citigroup Inc. (“Citi”) a definitive agreement to purchase EMI's recorded music division for a total consideration of £1.2 billion representing 7 x EBITDA prior to synergies.

EMI Group is one of the world's most prominent music companies, possessing a rich musical legacy. Its recorded music division, EMI Music, operates around the world and represents artists spanning all musical tastes and genres through record labels including Angel, Astralwerks, Blue Note, Capitol, Capitol Latin, Capitol Records Nashville, EMI Classics, EMI CMG, EMI Records, EMI Records Nashville, Manhattan, Parlophone, Virgin Classics and Virgin Records.

Jean-Bernard Lévy, CEO of Vivendi, stated: “We are very proud to welcome EMI into the Vivendi family. We all respect the labels within EMI as well as the artists and employees who contribute to its success. They will find within our Group a safe, long-term home, headquartered in Europe.” He then added: “We plan to acquire EMI's recorded music division on attractive terms, adhering to our principle of total financial discipline. We are confident that we will be able to create additional value for our shareholders thanks to our knowledge of the industry and our proven track record of successful integration. Lucian Grainge's personal experience and heritage will be a major asset in making the combined entity a great success.”

Lucian Grainge, Chairman & CEO of Universal Music Group, added: "This is a historic acquisition for UMG and an important step in preserving the legacy of EMI Music. For me, as an Englishman, EMI was the preeminent music company that I grew up with. Its artists and their music provided the soundtrack to my teenage years. Therefore, UMG is committed to both preserving EMI's cultural heritage and artistic diversity and also investing in its artists and people to grow the company's assets for the future. As a result, we will be better positioned to fully capitalize on the many new and exciting opportunities in the current marketplace, and also able to better serve our artists, songwriters and business partners, while offering fans even more choice.”

Stephen Volk, Chairman of the Board of EMI Group and Vice Chairman of Citigroup, added: “We believe that this transaction accomplishes Citi's objective of maximizing the value of EMI, giving EMI Music a partner in Universal Music that appreciates EMI's rich cultural legacy, its incredible stable of musical talent, and its employees who work so hard to deliver successful outcomes for the artists they represent. We are grateful to Roger Faxon, his management team and all of EMI's staff for the continued success of this business during Citi's ownership."

The transaction has been approved both by the Management Board and the Supervisory Board of Vivendi. Closing of the agreement remains subject to a number of conditions, including approvals of regulatory authorities in the countries and continents concerned.Vivendi will finance the transaction from its existing credit lines. Concurrently, Vivendi and UMG will also sell 500 million euros worth of non-core UMG assets.

Vivendi and UMG have been advised by Allen & Co. and SJ Berwin on this transaction. Citi Global Banking acted as financial advisor to Citi and EMI. Clifford Chance LLP, Shearman & Sterling LLP and Freshfields Bruckhaus Deringer LLP acted as legal advisors to Citi and EMI.