Saturday, August 11, 2012

EMI and Oil Deals Heat Up

Citigroup (C) cuts an EMI sale and China strikes another Brazilian oil acquisition, in highly anticipated multibillion-dollar deals.

Vivendi's Universal Music Group has agreed to buy the recorded-music business of EMI from Citigroup in a deal that values the label at $1.9 billion, according to Bloomberg, citing a person familiar with the situation. The deal may be formally announced by the world's largest music producer Universal later on Friday, and signals that by holding out on a sale, Citigroup was able to fetch an increased price.

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Citi owns EMI's music label and publishing business after it seized the iconic British music maker from Guy Hands and Terra Firma, which bought it in 2007 for $6.5 billion. Terra Firma lost the company this year under a burden of debt and revenue below projections. When Citigroup took over EMI, it wrote off the $4.3 billion in financing it provided Hands to make the acquisition.Up for auction by Citigroup are EMI's music label, which was previously expected to draw up to $1.5 billion and its music publishing arm, expected to raise as much as $2.5 billion. In October, Bloomberg reported that Citigroup would receive lower bids in its sale of EMI group as a result of tougher market conditions for buyout financing. According to previous reports, Citi was to fetch as much as $3.2 billion for EMI's combined label and publishing businesses that trace back to 1931 and which own the publishing rights to Coldplay, The Beatles and Katy Perry. If Citi were to sell its EMI Music label and publishing arm separately, the bank was reported to be able to raise as much as $3.75 billion. Friday's deal signals that EMI may actually generate an over $4 billion valuation by selling businesses separately.Friday's expected sale doesn't include EMI's music publishing business that generates money by licensing its artists' recordings, memorabilia and radio play of music. Some bidders like BMG, a joint venture between private equity firm KKR (KKR) and German media conglomerate Bertelsmann, as well as Sony (SNE) may look to buy just EMI's music publishing arm for as much as $2 billion, people familiar with the situation have said.

The New York Times also reported Friday that Sony is also close to an agreement for EMI's publishing arm, though an announcement would likely be released after an EMI Music sale.

The sale's will be the largest music industry takeovers since buyout veteran Len Blavatnik and his Access Industries bought Warner Music Group for $3.3 billion in May. Blavatnik was considered to be one of the bidders for EMI either in its entirety or for just its record label, however today's news make such rumors unlikely.

Private equity investor Ronald Perelman, like the other losing bidders for Warner Music such as Sony and BMG Chrysalis, are back at the deals table after losing out to Access Industries this spring. According to Bloomberg, the deal may be announced as early as Friday and is being financed by Vivendi's credit lines and possible asset sales of Universal Music.Chinese state owned oil company Sinopec (SHI) has bought a stake in the Brazilian operations of Portuguese energy company Galp Energia for $5.2 billion, counting loans it will provide.In the deal, Sinopec will make a $4.8 billion investment for a 30% stake in Galp's Brazilian subsidiary Petrogal Brasil and will provide it with a $390 million loan. Galp Energia will continue to own its 70% Petrogal Brasil holding, which is now valued at $12.5 billion."This capital increase significantly strengthens Galp Energia's capital structure, fully securing its funding needs for the future expansion and development of its upstream activities in Brazil," Galp said a statement announcing the deal.Previously, Galp said it was looking to raise $2.7 billion by selling a piece of its Brazilian unit, which owns a stake in the Jupiter oil field that may hold more than 30 billion barrels of oil. The company also owns a 10% stake in Brazil's largest-ever find, the Tupi well, which was drilled in 2007 and was the largest oil find in the western hemisphere since the Cantarell field was discovered in Mexico in 1976.

Sinopec and other Chinese firms may also look to take additional oil stakes in Brazil and other oil prone regions.

In October, Sinopec bought Canadian oil and gas producer Daylight Energy for $2.1 billion, and in 2010, the company paid $7.1 billion for a 40% stake in the Brazilian assets of Spain's Repsol.

In November, Bloomberg reported Marathon Oil(MRO) was selling $800 million of Angolan assets to a Chinese oil firm. As part of the company's announced plans of oil asset sales up to $3 billlion, Marathon was in talks to sell its Angolan offshore operations to China Petrochemical and other Asian buyers for $800 million, according to two people with knowledge of the process. Reports also indicated that Marathon may look to sell 30% of a joint venture in its Gulf of Mexico deepwater assets for $1 billion to Asian buyers.Currently, Marathon has a 10% interest in a key deepwater drilling asset offshore of Angola called Block 32, where Total (TOT) has a 30% interest and the Angolan state-owned oil company Sonangol has a 20% interest.The size of the sale signals just how valuable oil players, including Chinese firms, consider drilling prospects to be offshore Angola. Many see a geologic similarity with Angola offshore basins to those in Brazil that in 2007 and 2008 yielded the biggest oil finds in the Western Hemisphere in a generation.In 2009, Chinese oil companies Sinopec and Cnooc(CEO) bought a 20% stake in Block 32 from Marathon for $1.3 billion.

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