After much speculation the Universal Music Group announced this morning that it had reached an agreement with the board of The Sanctuary Group to buy the struggling London based cross-sector music company. Universal is proposing to buy Sanctuary via its UK based Centenary Music Holdings Ltd company, and will pay 20 pence a share in cash as well as taking on the Group's debts, meaning the deal is worth £104.3m in total.
Sanctuary will hope the takeover can bring to an end a long period of financial instability which followed rapid over expansion a few years back, and was worsened by accusations of financial mis-reporting. As previously reported, the independent had been known to be in talks with a number of possible buyers for a while now, including a number of private equity firms, although more recently rumours of takeover talks with two major record companies - Warner and Universal - became more prevalent.
Confirming the agreement between Universal and Sanctuary regarding a takeover, Universal Music CEO Doug Morris told reporters this morning: "We are delighted with today's announcement as this transaction represents an important step forward for both Sanctuary and Universal. The Sanctuary business will be a good strategic fit for us, and our objective over the coming months is for Lucian Grainge (Chairman and CEO, Universal Music Group International) and his team to work with Frank Presland and the Sanctuary management team, and their artists. We have a great opportunity to strengthen and advance Sanctuary's position as a significant player in artist management, agency and merchandising, as consumers' appetite for music grows worldwide. The union with Universal's global strength and leadership will further develop Sanctuary and its talent on the international music stage".
Sanctuary Chairman Bob Ayling added: "The past few years have proved to be a very difficult time for Sanctuary and a very disappointing one for its shareholders. Much progress has been made under the new Board in the past twelve months. However, growth and profitability will continue to be hampered by the Sanctuary Group's present capital structure and by industry factors. Therefore, we intend to recommend this offer from Centenary, which represents a significant premium to the level at which the shares have traded for much of 2007. Moreover, the Sanctuary and Universal businesses are highly complementary and Centenary's acquisition of Sanctuary can allow the Sanctuary business to benefit from the already well-established relationships between Sanctuary and Universal and from a more supportive capital structure, which is in the future interests of artists and employees."
Quite what the independent sector will make about the largest record company in the world acquiring a significant indie like Sanctuary I don't know - I suppose it's a choice between major labels expanding even more and shady private equity types buying up the industry. Universal will have to inform EU competition regulators about their intentions, of course, and they too may have an opinion about the proposed Sanctuary purchase, though insiders at the major reckon that because a sizable chunk of Sanctuary's business is in management and merchandising, areas where Universal does not currently operate, and given that Sanctuary's share of the recorded music market is quite small (although, with their catalogue, could arguably be a lot bigger), that EU approval may well not be required. We'll see I guess.