Sony CEO Kenichiro Yoshida talks about the Sony/ATV acquisition of another 60% of EMI Music Publishing at the Sony investor meeting in Tokyo yesterday. (Photo: Agence France-Presse/AFP)

Sony is acquiring another 60 percent of EMI Music Publishing, bringing its total holding to 90 percent of the song giant. The deal, valued at around $2 billion, sees Sony gaining additional rights to EMI’s two million songs from artists ranging from Queen to Pink, Pharrell Williams and Carole King to drive revenue through Sony/ATV publishing.

The seller is led by Abu Dhabi-based Mubadala Investment Company. In 2012 the Tokyo-based Sony began it’s investment in EMI Music Publishing in partnership with Michael Jackson’s company. In 2016 it exercised an option to pick up the Jackson estate’s share for a reported $750 million, bringing its total holdings to 40 percent

This additional purchase is the first big deal under CEO Kenichiro Yoshida, who it was announced in February would replace Kaz Hirai as head of the parent company. Announcing the company’s mid-term strategy today, Yoshida cited the “resurgence” the music business has seen in recent years, largely the result of the popularity of subscription streaming services from companies including Spotify, Apple and now YouTube. With this purchase, Sony “is becoming one of the biggest music publishing companies, both in name and reality,” Yoshida said in a statement.

“We are thrilled to bring EMI Music Publishing into the Sony family and maintain our number one position in the music publishing industry,” Yoshida said, extending “my gratitude to Mubadala, our equity partner in EMI Music Publishing, for sharing our long-term perspective on the potential success of music publishing and their support as we grew the business.” Yoshida talked about how the acquisition adds to Sony’s “strong IP portfolio,” calling it “a particularly significant milestone for our long-term growth.”

The original transaction and the investor consortium that partnered with Sony and the Michael Jackson Estate to acquire EMI Music Publishing from a wholly-owned subsidiary of Citigroup Inc. were sourced and assembled by Mubadala Capital’s private equity business, which has controlled and managed EMI Music Publishing on behalf of Mubadala and other third-party investors since 2012.

Hani Barhoush, Head of Mubadala Capital, said: “EMI has been a successful investment for Mubadala and I would like to personally extend my appreciation to the leadership at Sony and Sony/ATV, who have been instrumental in administering the EMI catalog as well as shaping the music landscape on a global basis. They have been tremendous partners to us.”

Adib Mattar, Head of Private Equity for Mubadala Capital and Chairman of EMI Music Publishing, said: “EMI Music Publishing represents one of the world’s largest and most diverse catalog of copyrights with iconic songs that span every decade over the last one hundred years. Writers and artists only stand to benefit under consolidated ownership and should feel proud to be part of the Sony family. The sale of our consortium’s interest in EMI Music Publishing represents a milestone for Mubadala and our private equity business.”

While the final purchase price to be paid by Sony for all of Mubadala’s equity interest in EMI Music Publishing is subject to customary closing adjustments, the total cash consideration Sony expects to pay to consolidate EMI Music Publishing is approximately $2.3 billion. Sony will assume EMI Music Publishing’s existing gross indebtedness, which was approximately $1.359 billion as of March 31, 2018. Upon closing of the transaction, Sony expects to record in operating income a non-cash step-up gain of approximately 100 billion yen for the equity interest in EMI Music Publishing it currently owns. The step-up gain and the consolidation of EMI Music Publishing has not been included in Sony’s forecast of consolidated financial results for the fiscal year ending March 31, 2019, and Sony is currently assessing the impact of this step-up gain and the consolidation of EMI Music Publishing on its consolidated financial results for the fiscal year ending March 31, 2019.

Over the past six years, Mubadala and Sony have worked together as partners to create value alongside Sony/ATV Music Publishing (“Sony/ATV”), Sony’s music publishing arm, which has been administering the EMI Music Publishing catalog’s legacy of iconic writers and artists, reinvesting in existing writer relationships and growing the catalog by signing new writers on a 50/50 basis with Sony/ATV. These actions, coupled with the global rise of streaming and paid streaming services, have led to an appreciation in value of the EMI Music Publishing catalog as millions of consumers have been provided access to innovative distribution channels to enjoy music like never before.

EMI Music Publishing owns or administers rights to more than two million songs that include classics by Queen, Carole King and the Motown catalog along with contemporary songs from Kanye West, Alicia Keys, Drake, Sam Smith, Pink, Pharrell Williams, Calvin Harris, Fetty Wap, Hozier and Sia.

Together with Sony’s 100 percent-owned Sony/ATV music publishing, headed by Martin Bandier, and Sony’s 100 percent-owned Sony Music Entertainment (Japan) Inc., the Sony Group collectively owns more than 2.3 million copyrights, featuring the Beatles, contemporary superstars and the Leiber Stoller catalog.

EMI Music Publishing generated revenue of $663 million, adjusted operating income of $181 million^*, and adjusted EBITDA of $249 million for the fiscal year ended March 31, 2018.

According to the mid-term plan issued by Sony Corp. today, the core strategy for the music segment is “to strengthen Sony’s music content IP [intellectual property] in order to maximize the business opportunities from the continuing growth of the streaming market.”  This additional EMI purchase does just that.

Interestingly, the value assigned to EMI Music Publishing of $4.75 billion is very close to the record revenues Sony Corp. reported in April: $4.5 billion. Sony says consummation of the deal is “subject to certain closing conditions, including regulatory approvals.”

Related news: Sony/ATV announces today that it has extended its deal with Luis Fonsi, songwriter and performer behind the smash hit “Despacito.”