BERTIE’S OVER A BEER BARREL

With Bertelsmann looking to raise cash by selling off its 50% of Sony BMG Music Entertainment and its BMG Music publishing division, Sony has emerged as the leading candidate to take control of the venture, which given the cash savings and consolidation that has already taken place, could turn out to be a bargain.

Can Sony afford to acquire the other half of the company, which would carry a price tag of between $2-2.5 billion? Could they use their leverage to prevent Bertelsmann from selling? Most observers feel Sony has its hands full trying to right their core business of electronics, and that the recorded music business is still in a slow-to-no-growth state until the anticipated digital revenue streams can fully kick in.

Still, most insiders feel Sony’s in the best position to make this deal, and that they have Bertelsmann over a barrel.

Bertie’s decision to put its half of the music company on the block comes from its owners, the Mohn family’s desire to keep the closely held company private. The moves follows Belgian concern Groupe Bruxelles Lambert SA and principal Albert Frere’s threat to force it into an IPO to recoup the almost $6 billion which constitutes the 25.1% share it received for selling them media conglom RTL. The Wall Street Journal reports that Bertie has until May 2007 to come up with the buyout.

Inside sources report there is a mechanism in place within the original agreement for either party to get out of the deal, though there is reportedly a time factor where the parties must stay for a certain number of years or incur a financial penalty. Given that scenario, Sony would be in the best position to acquire Bertelsmann’s half of the company for a better price than any outside buyer.

If that’s the case, and Sony boss Sir Howard Stringer was aware that Bertelsmann wanted out, why was he willing to remove Andrew Lack from the CEO spot in favor of BMG’s Rolf Schmidt-Holtz? Those in the know say any proposed deal would be much easier to accomplish without Lack in the driver’s seat, even if the Wall Street Journal suggests the situation could pave the way for his return to power.

The two companies have been unsuccessfully trying to combine their two disparate cultures since the merger took effect in August 2004. During the recent Sony BMG confab in Florida, both entities continued their intense competition in the U.S., each trying to top the other with their upcoming release slates. While the two label groups remain separate entities in the States, outside America, the companies are fully integrated, with BMG execs by and large in the top posts. If an outside entity were to gain control of Bertelsmann, it would force Sony to retool its global operation.