Vivendi to Restructure Its BMG Purchase, Sources Say

Vivendi will restructure the way it will buy BMG Music Publishing after European regulators said they were unhappy with the use of a technique that has become increasingly popular in media deals, sources close to the transaction said.

Vivendi’s Universal Music Group had planned to use a structure known to deal makers as the “hell-or-high-water clause” because it guarantees that the seller gets paid regardless of whether the buyer gets regulatory approval to do the deal, the sources said.

Typically in such deals, the seller agrees on a price and enlists a middleman, usually a bank, to retain possession of the company changing hands.

“It’s an economic deal whereby the risk of owning that asset is effectively in the hands of those trying to buy it,” one of the sources said.

But European regulators told Vivendi that the structure for its 1.63-billion-euro ($2.07-billion) acquisition was unacceptable after usage of it increased, the sources said.

“The EU said: ‘We’re not going to be enthusiastic about these structures anymore, so it behooves you to find another way,’ ” a source said.

The sources said that there was no danger of the deal falling apart but that Bertelsmann, which owned BMG, would have to hold on to the music publisher pending approval from European competition authorities.

“They still have their definitive agreement that Vivendi will pay Bertelsmann before the end of the year regardless of whether they get the approval or not,” one of the sources said.

“So effectively they are custodian of a business that they’ve already sold, which is a bit of an unusual situation.”

Bertelsmann repeated an earlier statement that it was working with Vivendi to complete the deal and expected to be paid by the end of the year. Vivendi declined to comment.