GE Agrees to Sell Its 75% Interest in Record Firm : W. German Conglomerate Would Become Sole Owner of RCA/Ariola Operations
General Electric said Tuesday that it has agreed to sell its 75% stake in RCA/Ariola International record operations to Bertelsmann AG, which already owns the other 25%.
If completed, the acquisition would transfer ownership of one of the oldest names in recorded music--RCA Victor, which traces its history to the hand-cranked Victrola--to the giant West German conglomerate.
Terms of the deal were not disclosed, but record industry and Wall Street sources put the price at between $275 million and $375 million. For that, Bertelsmann gets the third-largest U.S. record distributor, with annual sales of more than $600 million and an artist roster that includes Kenny Rogers, Diana Ross and rock groups including the Eurythmics and Mr. Mister. In addition, Bertelsmann will acquire full ownership of New York-based Arista Records. That label has been a 50-50 venture between RCA and Bertelsmann.
The sale also includes RCA Video Productions--a software distribution concern, RCA Records Special Products and the RCA Record Club, the second-largest record club, behind that of CBS. The sale does not include a home-video joint venture owned by RCA and Columbia Pictures.
The deal is subject to governmental approval and is expected to be completed by the end of the year.
Sale Was Expected
GE’s decision to sell RCA/Ariola surprised no one. It has been speculated for months that the company would unload the record unit that it bought as part of its $6.28-billion acquisition of RCA Corp. earlier this year.
“We reached a conclusion that this is not a business we want to be in,” said Jack Batty, a spokesman at GE headquarters in Fairfield, Conn. “We’re moving toward high-tech and service businesses, and (RCA/Ariola) was not a good fit for us.”
Batty said that under the terms of the deal, Bertelsmann will continue using the RCA logo and Nipper the dog trademark on its record products, “so consumers won’t see any difference at all.” GE will also continue to use the logo and trademark on its RCA consumer electronic products, Batty said, adding with a chuckle, “to make it even more confusing, RCA/Ariola will continue to distribute the products of the (RCA-Columbia Pictures) home-video joint venture.”
RCA/Ariola spokesman Robbin Ahrold said the company “is making no statements--it’s GE’s and Bertelsmann’s deal.” But Ahrold translated a statement from Bertelsmann Chairman Mark Woessner--written in German from the company’s headquarters in Guetersloh, West Germany--that said the acquisition was part of a “long-sought strategic goal” to make Bertelsmann a major factor in the record industry.
In addition to its record operations, Bertelsmann is West Germany’s largest publishing group with more than 100 subsidiaries in 18 countries. Its holdings in this country include Bantam Books and Parent magazine.
Bertelsmann’s entry in the the U.S. record business came in 1979, when it purchased Arista Records from Columbia Pictures for a reported $50 million. But after Arista lost $12 million in 1982, Bertelsmann sold a 50% interest in the company to RCA Records in 1983.
A year later, RCA Records and Bertelsmann’s overseas record operations were merged, with Bertelsmann taking the junior position.
RCA/Ariola was formed a year ago by folding in all remaining RCA and Bertelsmann record operations, and the merged company recently underwent an extensive management restructuring.
One RCA/Ariola executive said Tuesday that “the atmosphere here is very good; people are relieved that we’re not being sold to a total stranger.”
Others who had been reported in the bidding for the company included MCA Inc., Coca-Cola, Walt Disney Co., former 20th Century Fox owner Marvin Davis, and Arista Records President Clive Davis in partnership with former 20th Century Fox Chairman Alan Hirschfield and RCA/Ariola President Ellott Goldman.
“Bertelsmann’s senior managers are members of the board and they participated in all the key decisions of the restructuring and implementation of the RCA/Ariola joint venture, so they know exactly what it is they bought--unlike some of the other people on that list,” said the executive, who asked not to be identified.
However, one record company president, who also requested anonymity, said that even at the low-end estimate of $275 million, “I think they overpaid by a considerable amount.” He noted that Arista was perennially unprofitable when it was owned solely by Bertelsmann and that RCA Records earned profits of only $23 million last year on reported sales of $757.8 million.
“If someone is willing to pay $275 million for a company” with such mediocre results, “that puts an incredible value on the record operations of CBS and Warner Communications, which are profitable year after year,” he said.