GoldmanSachs Materials
Transcript of GoldmanSachs Materials
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1t
Disc,ussion
Materials
Goldman
Sachs
Capital
partners
April
{5,
2003
not
lnclude the
tdentry
ol the
padtes
hereto
or
the,r respeAive
aninat*,
PROPRIETARY
AND
CONFIDENTIAL
n
a
ldm
ells
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PROPRIETARY
AND
CONFI
DENTIAL
current
MJ
status
As
we
understand
lt
Current
Financial
Position
I
t
Total
financial
obligations
of
$2S4
million
$200
million
BofA
Loan
-
Secured
by MJ's
Sony-ATV
interest
-
December
20, 2005
maturity
$35
million
BofA Loan
-
Secured
by
MIJAC,
Neverland
Ranch,
MJ
personal
guarantee
and
other
personal
property
-
January
31, 2004
maturity
$1
2
million
current
obligations/liabilities
$7
million
advance
from
Sony-Signature
secured
by
MIJAC
(second
lien)
I
I
Financial Obliqations
BofA
Debt:
$235m
Sony-Signature:
$7m
Payables:-
$12m
Sony
-
ATV
EBITDA:
Debt:
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I
PROPRTETARY
AND
CONFIDENT|AL
t-----'---l
BofA
Foreclosure
Scenario
t
MJ
cannot
transfer
his
Sony-ATV
interests
without
the
consent
of
Sony
t
lt-is
unlikely
that MJ
would
be
able
to take
advantage
of
his
exit
rights
under
the
Sony-ATV
operating
agreement
given
the
maturity
date
of
the
$200
million
BofA
loan
and
the expiration
date of
the
BofA
$200
million
put
right
r
Without
alternative
financing,
there
is
a
strong
risk
thatMJ cannot
avoid a
foreclosure
by BofA
unlesi
MJ
receives
the
cooperation
of
both Sony
and
BofA
I
:
t
BofA Foreclosure
Scenario
BofA
seizes
MJ's 50% interest
in
Sony-AW
BofA
seizes
MJ's
100%
interest
in
MIJAC
Total
of
$78
million in financial
obligations/liabilities
-
$59
million
tax liabilityl
-
$12
million cunent
obligations/liabilities
remain
outstanding
-
$7
million cash
advance
from
Sony-Signature
remains outstanding
-
MJ still
personally
liable
if
there is
a
short-fall
on
$35
million loan
lf
MJ does
nothing,
he may lose
his
music
publishing
assets
and
still
be
subject
to
a
substantial
amount
of
tax
and
other
riabirities
.>,
iiil.iil
'
Assumes
zero cost bas,b
for
Sony-ATV
and
MIJAC
and
Woceeds
rcceived
are
deemed
capitat income
taxable
at a 25%
capitat
gains
tax rate
2
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PROPRIETARY
AND CONFIDENTIAL
our
understanding
of
MJ's
objectives
Financial
stabilization
and
vllue
Maximization
Relieve
current
debt
and
liabilities
and
create
a business
plafform
for
future
wealth
creation
-
Pay-off
significant
amount
of current
debt / liabilities
-
Receive
50%
of
new
music
company ("Music
LLC')
in
partnership
with Goldman
Sachs
Reduce
significant
amount
of short
and long-term
obligations
currenfly
outstanding
-
Eliminate
significant
amount
of
g23S
million
of
BofA
debt
which
is
secured
by
MJ's
interest
in Sony_ATV,
MlJAc,
Neverland
Ranch
and
an MJ
personal
guarantee
-
Eliminate
$12
million
of
current
obligations (e.g.
personal
expenses,
legal
fees,
etc.)
-
Remove
the second
lien on MIJAC
from
Sony-Signature $7 million advance
Generate
cash
proceeds
to
provide
a liquidity
cushion
as
MJ's new
business
initiatives
begin
generating
income
Position
MJ
to
be
the
"Bill
Gates"
of
the
music industry
-
Retain
equity
stake
in music
assets
to benefit from
future
value
creation
-
Own
smaller
stake in
a
potentially
much
larger,
multi-billion
dollar
company
No current
tax
liability
lmmediately
establish
financial
stability
and
limit
future
financial uncertainty
S Proposal
will help
MJ reduce
his financial
obligations
and
create a
platform
for
future
wealth
creation
I
I
T
I
3
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PROPRIETARY
AND
CONFIDENTIAL
Goldman
Sachs'
proposal
Paying
off
MJ's
Financial
Obligaiions
/
Creating
Platform
for
Future
Wealth
Creation
I
MJ contributes
all
of
his
interests
in
sony-ATV
and
MIJAC
to
a
newly
created
vehicle
(,,Music
LLC")
in
partnership
with
Goldman
Sachs
Capital
partners
gdSCR,l
I
GS
Lender
to.provide
$135
million
in
cash
which
MJ
can
use
to
repay
his
current
liabilities
and his
BofA
loans
-
Cash
of
$35
million
to
pay
off
entire
$35
million
BofA
Loan
secured
against
MTJAC
-
Cash
of
$68
million
to
reduce
balance
on
$200
million
BofA
loanl ($t
gZ
million
balance
would
remain)
--
cash
of
$z
million
for
pre-payment
penarty
for
the
BofA
roans
-*
Cash
of
$1G
million
to
handle
other
current
obligations
-
cash
of
$g
million payable on a monthly basis for the first
year
-
No
intended
current
tax
liability
r
MJ
will
receive
$3.5
million-per
Vggr
for
5
years
-
during
Year
1
,
MJ
will
receive
$12
million
($1
million
per
month)
due
to
$9
million
proceeds
from
GS
Lender
r
MJ
will
receive
an
initial
50%
common
equity
stake
in
Music
LLC in
partnership
w1h
GSCp
for
future
wealth
creation
opportunity
t
GSCP
proposal
pro-vides
MJ
with
an
equivalent
pre-tax
valuation
of
$S1g
million2
or ZO.4xtrailing
EBITDA
on
a
net
present
value
basis3
-
ln
other
words,
MJ
would
have
to
sell
his interests in sony-ATV and MIJAC
for
20.4x
EBITDA
to
generate
thesame amount
of
after{ax
proceeds
on
a
net
present
value
basis
as
the GSCP
proposal
-
EMI's
current
stock
price
implies
that
its
music
publishing
business
is
valued
at between
g.7x
to
1Z.2xEB|TDA4
.-
Press
reports
suggest
that
AOL
Time
Warner
may
look
to
sellWarner-Chappell
for 10-12x
EBITDA
'r1 :y t^:r:l2tt
to.,adiustnent
due
fo irteresf
res
eve account
(g2Am
as ot
January
s1,
2OAs)
-
Assumes
$394
nillion
in
equity value
and
$125
miltion
in
debt
a
Assumes
recorde
d music
is
vatued'at
between
e'.ox
andi,.ox
traiting
EBITDA.
Aptil
11,
2oo3
stock
price
of
GBp 0.g7.
4
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Potential
Alternatives
to
Gscp
proposal
Existing
Arrangements
with
Sony
and
BofA
t
Do
nothing
/
BofA
forecloses
on
debt
-
BofA
forecloses
on
$235
million
debt
secured
against
Sony-AW,
MlJAc,
Neverland
Ranch
and MJ
personally
-
MJ
would
owe
$59
million
in
taxesl
upon
foreclosure
which
he would
have
to
fund
from
other
sources
r
Refinance
BofA
loans
-
lf
successful
in
refinancing,
MJ would
long-term
instabi
lity/u
ncertainty
-
However,
there
is
significant
refinancing
risk
on the
$200m
loan
since
it
may
be
dependent
on
Sony
extending (i)
the
put
obligation
to
BofA
and
(ii)
the
o6ligation
to
pay
a
$6.5
million
annual
distribution
to
pay
interest
-
lf
BofA exercises.its
put
right
on the
$200 million loan, MJ would lose
his
interest
in sony-ATV and
owe
$s0
million
in
taxesl
at the
time
of
the
put
which
he will
have
to fund
from other
sources
Exercise
$200 mittion
put
right
to
Sony
-
MJ
can
put
his
interests
in
sony-ATV
to
sony
for
$200
million
between
Dec.
1,
2005
and
Feb.
2g,2006
-
Under
the
terms
of
his
$200
million
Bof4
loan,
MJ
would
have
to
use
the
proceeds
to repay
the
BofA
loan,
leaving
MJ
with
a
tax
liability
of
$50
millionl
that
he
would
have
to fund
from
other
sources
Exercrbe
Exit
Rights
under
sony-ATV
operating
Agreement
-
MJ
can
commence
the
exercise
of his
exit rights
October
1, 2005
in order
to
sell his interest
-
lt
is
unlikely
that
MJ
will
be able
to take
advantage
of
his
exit
rights
due
to the
insufficient amount
of time
MJ
has
to conclude
the
exit
process
due
to
the
BofA
l6an
maturity
dale
and
the expiration
of
the
$200
million
put
-
lf
MJ
sold,
he
would
have
a high
valuation
hurdle
(17x
trailing
EBITDA2)
to
generate
enough
proceeds
the
BofA
debt
and
the
resultinii.*
liability
(GSCP
proposal's
purchase
multipte
is 20.4x
on
pre-tax
Npv
ollili
'
Assumes
zero
cosl
basis
and
proceeds
are deemed
capitat
income
taxabte
at capital
gains
tax rate
of
25%
if::::::
2y:l:: p"ry yy:.r, JAC
althe
sani
tiTti,g
eaffoniittiiti'r"-[ii:i"#ii_nru
,n,",ur,.
o,
remain
in
the
same
position
that
he
is in
today
-
i.e.
short-term
relief,
miilion
EBTTDA
for
purposes
of
catcitating
nuftiple
a value
that
generates
sufficient
after-tax
proceeds
to
pay potential
taxiiaoititi6s
upon
exil
Assu/res
a
g2g.s