HONG KONG - Sony is loudly demonstrating its love of content. On Tuesday, the Japanese electronics and entertainment group said it would buy majority control of EMI Music Publishing. Sony tightens its grip on a two-million-song catalogue spanning Queen to Kanye West - and the $4.8 billion deal leaves no room to doubt new boss Kenichiro Yoshida’s belief in the industry’s recovery.

This is an uplifting coda to the sorrowful ballad of EMI, the venerable British record label. A 2007 takeover by buyout baron Guy Hands foundered during the financial crisis and as digital piracy ran rampant. Lender Citigroup seized the asset. It sold EMI between 2011 and 2012 in two parts, separating the recorded music business from the unit holding rights to compositions and lyrics.

The latter was traded to a colourful consortium. This united Sony, then financially much weaker than it is now, with a motley group of investors including Michael Jackson’s estate; Abu Dhabi’s Mubadala; the film mogul David Geffen; private equity titans Blackstone; and Jho Low, the financier made notorious for his role in the Malaysian 1MDB fund scandal.

Now Sony is paying $1.9 billion to buyout Mubadala and various others, lifting its stake from roughly 30 percent to 90 percent. Other payouts lift the total cash outlay by a further $400 million. Including debt, Sony says this gives the target an enterprise value of $4.75 billion.

That equates to more than 19 times trailing EBITDA of $249 million, adjusted for one-offs. The multiple looks punchy, when last year media and entertainment deals averaged 14 times EBITDA, Thomson Reuters data shows.

However, the music industry is reviving nicely, thanks to Spotify, Apple Music and others. UBS forecasts sales for publishers from paid-for streaming services could go from $700 million in 2017 to $3.6 billion in 2026. That’s quite a turnaround in fortunes.

This also chimes neatly with Yoshida’s interest in intellectual property, and in stable, recurring revenue. It is a business Sony already knows intimately. And the purchase stops rivals like Warner Music expanding their own catalogues. So it’s a noisy, but not wholly off-key, move.

CONTEXT NEWS

- Sony said on May 22 it had agreed to take control of EMI Music Publishing, in a deal valuing the world’s second-largest music publisher by sales at about $4.75 billion including debt.

- The Japanese entertainment and electronics group will pay roughly $2.3 billion cash to consolidate the business. Sony will buy all of the roughly 60 percent stake in EMI held by an investor group led by Abu Dhabi sovereign fund Mubadala, raising its stake to 90 percent. Sony will also assume gross debt of about $1.4 billion

- The target made adjusted EBITDA of $249 million in the 12 months to end-March on revenue of $663 million.

- U.S. bank Citigroup split up and sold EMI after seizing the UK record label from British private equity firm Terra Firma. In 2011, Citi agreed to sell the music publishing arm to a consortium including Sony and Mubadala for $2.2 billion. Regulators approved the sale in 2012.

- Separately, new President and Chief Executive Kenichiro Yoshida laid out his mid-term targets. He wants Sony to produce 2 trillion yen ($18 billion) of operating cashflow from its non-financial businesses over the three years to March 2021; increase dividends; and keep generating annual returns on equity of 10 percent or more.

- Sony shares stood 0.9 percent lower by late morning in Tokyo on May 22, at 5,341 yen a share.

(Editing by Una Galani and Katrina Hamlin)

© Reuters News 2018