Polygram confirmed Tuesday that it is buying Motown Record Corp. in a $325-million deal that is expected to transform the black music icon into a global entertainment company involved in music, films and new interactive technologies.
Polygram, controlled by the Dutch electronics giant Philips, will pay $301 million in cash and assume $24 million in current liabilities from Motown's majority owner, Boston Ventures. The deal is a stunning premium above the $61 million paid in 1988 by the Boston-based investment firm and its then-partner, MCA Inc.
Observers said the increased value is a credit to the revival of Motown in the past five years under its president, Jheryl Busby, who has brought a stable of successful young acts to the label. The higher price also reflects Polygram's confidence that it can use its global marketing and distribution reach to develop the Motown name beyond what has been done to date.
"If Motown was going to go into the 21st Century, we needed to find a strategic partner," Busby said in an interview.
Founded in Detroit by Berry Gordy Jr. as "Hitsville USA," Motown flourished in the 1960s and 1970s with such artists as the Supremes, the Four Tops, the Jackson 5 and Stevie Wonder.
By the late 1980s, the company had become largely dormant, with its main business its huge catalogue of hits, which are especially lucrative because royalties negotiated in the 1960s are low by today's standards. Under Busby, Motown began developing new artists again, including the highly popular Boyz II Men group. Motown's 1992 sales were about $134 million.
Boston Ventures and Busby are expected to receive additional payments under the terms of the sale if Motown increases in value. Busby will stay on as president of the Los Angeles-based company with a five-year contract, while Gordy will have the honorary title of chairman emeritus.
Busby will report to a management board headed by his longtime mentor, Clarence Avant, currently the owner of Avant Garde Music Publishing and chairman of Tabu Records, another Polygram affiliate.
One area in which Motown is likely to expand is films. Polygram, which has been distributing Motown music since 1991, has long wanted to form a company to work with black filmmakers. Polygram Chief Executive Alain Levy said in an interview that Polygram "would be foolish not to do that" now that it has a name as valuable and well known as Motown.
Still another undeveloped area is the Motown name, which Levy said Polygram values at $50 million by itself. Busby suggested there are numerous licensing possibilities, such as using the name for a chain of restaurants.
The sale is expected to provide a windfall for MCA Inc., which divested its stake previously in a bitter split. Sources familiar with the deal said MCA could receive $25 million to $30 million because of a clause that gives the company a chunk of the proceeds if Motown is sold above a certain price.
Polygram said it will issue up to 10 million new shares of stock to pay for the acquisition. Separately, Polygram posted record results for the six months ended June 30, with profit rising 19% to $107 million and sales rising 6% to $1.7 billion.
The results surprised analysts, who said Polygram did especially well, given global economic sluggishness. On Tuesday, Polygram shares rose $1.625 to close at $30.875 on the New York Stock Exchange.