BERTELSMANN has put its $1.4 billion-rated music publishing arm up for sale after it agreed to buy out its minority shareholder Groupe Bruxelles Lambert. The auction for the publishing business is likely to pit Universal Music with a clutch of venture capital buyers.

The privately-owned German group is selling the BMG unit to help defray the €4.5 billion (£3bn) cost of buying out 25.1 per cent shareholder Groupe Bruxelles Lambert.

Universal, the world’s biggest recorded music group, is desparate to build up its weak publishing arm. Music publishers own the copyright to songs, which earns the writer a fee everytime they are played live or on radio.

However, interest in the unit is expected to be widespread. Elevation Partners, the US venture capitalist, recently hired Les Bider, who used to run the Warner/Chappell music publishing operation, with a view to bidding. Existing management led by Nicholas Firth are also thought to be keen to put together a management buy out.

BMG music publishing generated revenues of €372.4 million and generated an unspecified "double digit" return on sales last year. Music publishing assets are sought after because they are highly profitable, as marketing costs are absorbed by recorded music operations.

Bertelsmann also made it clear that it would not offload its half of the SonyBMG recorded music unit, after talks with Sony foundered. It is not clear, though, whether the 50 per cent stake has a long term future at the company.

The German company’s debt will rise from €3.9 billion to €7.6 billion after the deal, and before the sale of the publishing business.

Moody’s, the credit-rating agency, warned it might cut the company’s Baa1 credit rating one notch, but Standard & Poor’s and Fitch said they would probably keep the company at BBB+, comfortably in investment grade.

Bertelsmann indicated that it would still be able to invest in its businesses, but that as any significant deals would require balancing disposals because its total debt pile stands at 3.4 times underlying profit.

However, Thomas Rabe, chief financial officer, said that borrowings would get back to within its target of 2.3 times underlying earnings by the end of 2007.

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