* Deal values BMG at 1.1 bln eur incl debt - Bertelsmann CEO
* Bertelsmann pays 700-800 mln euros including debt-source
* KKR roughly doubles its investment - source
* Bertelsmann looking for further acquisitions
By Ludwig Burger and Nikola Rotscheroth
FRANKFURT, March 1 Bertelsmann AG,
Europe's largest media company, is buying out its partner in
music rights company BMG, banking on pop fans splashing out on
more digital downloads.
The German group, best known for its TV arm RTL and
publisher Random House, said the purchase of the 51 percent
stake from private equity group KKR & Co LP valued BMG
at 1.1 billion euros ($1.4 billion), including debt.
A person familiar with the matter said the purchase price
was between 700 and 800 million euros, also including debt.
Bertelsmann is trying to expand into digital content and
into emerging markets to complement its ailing print publishing
business, where it is planning a merger with Pearson Plc's
BMG oversees the fees from radio stations and advertising
companies as well as the key growth area of online music shops.
It manages the rights to more than a million songs, including
works by artists like Bruno Mars, Johnny Cash and Will.i.am.
"The use of music has never been as high as it is today, not
least because of the streaming technology. This (BMG) is a
business with robust growth potential," Chief Executive Thomas
Rabe told Reuters.
He pointed to the recording industry reversing a decline
which began in 1999 because of digital copying and file sharing.
Online marketing platforms like Apple Inc's iTunes
were taking hold and were expanding in emerging markets such as
Russia, further shoring up BMG's business, Rabe added.
The deal, funded out of the media group's cash reserves,
would close during the first half of the year, Bertelsmann said,
declinding to disclose more financial terms.
Rabe said that while BMG would look for smaller and
medium-sized takeover targets, it would not need an alliance
"We are happy to have BMG back with us entirely," Rabe said.
BMG had lost out in 2011 to rival bidder Universal Music
Group, part of Vivendi SA, when music rights group EMI
Group Ltd was put up for sale.
KKR roughly doubled its investment, cashing in between 350
and 400 million euros for its stake, the source close to the
deal said. KKR initially invested 50 million euros in BMG in
2009 and later upped the investment to 209 million.
On an annualized basis, KKR's return - or so-called internal
rate of return (IRR) - was above the 20 percent threshold
private equity investors usually seek when buying and selling
The BMG sale is KKR's second media divestment in roughly two
weeks. In mid-February, KKR and peer Permira raised
485 million euros in the sale of shares in German broadcaster
ProSiebenSat.1, the first step towards their
complete exit from the media group.
Bertelsmann's Rabe said in September he planned major
acquisitions and strategic partnerships to accelerate growth in
a bid to become more international and a leading digital
Music rights companies as well as educational and scientific
book groups are among potential targets, Bertelsmann has said.
The group is also seen as a possible buyer for German speciality
publisher Springer Science+Business Media, owned by
private equity firms EQT and GIC.
Bertelsmann is planning to pay for its acquisition spree by
selling shares in broadcasting group RTL Group.