Since privately owned Bertelsmann already owns $300 million of that sum, the deal is valued at $900 million.
The move enables Sony to move more quickly as the No. 2 player in a U.S. music industry challenged by online piracy and declining album sales. It also allows the company to cut costs and make a further attempt to integrate its content on cell phones and its popular game console, the PlayStation 3.
The U.S. stock market cheered the announcement, sending Sony shares up $1.37, or 3.7 percent, to close at $38.39, slightly ahead of the 2.9 percent gain in the Dow Jones industrial average.
Analysts said it remains unclear if Sony will be able to turn around the joint venture, which has seen revenues tumble but profits improve due to cost cutting.
In 2007, it posted 278 million euros ($429 million) in operating earnings before interest, depreciation and amortization as revenue declined 28 percent to 2.9 billion euros ($4.5 billion), according to Bertelsmann's annual report.
Cost cutting, including a 5 pstin Timberlake, Alicia Keys, Celine Dion and Yo-Yo Ma, said he feared lesser known artists might be hurt.
"At the top we don't feel the artists are much affected," he said. "The artists that are likely to suffer are going to be the ones on the margin."
Once the deal, which is subject to regulatory approvals, is complete, Sony Music Entertainment Inc. will be comprised of several music labels, including Arista Records, Columbia Records, Epic Records, J Records, Jive Records, RCA Records and Zomba.
Its artists will include Celine Dion, Bruce Springsteen, Justin Timberlake and Usher, among others.
The deal is not subject to approval by Sony shareholders and is expected to close before the end of the year.
Bertelsmann will take over a limited amount of selected European music catalog assets from Sony BMG, which represents about $20 million, or less than 1 percent of Sony BMG's revenue last year.
Sony BMG is the second-largest music company in the United States with a roughly 25 percent share of the market, according to Nielsen SoundScan, which tracks sales of albums, singles and digital downloads.
Universal Music Group, a unit of Vivendi SA, is No. 1 with 31 percent, while Warner Music Group Corp. is third with 21 percent and EMI Group PLC is in fourth with about 9 percent.
