By Derek Caney

NEW YORK, Aug 24 (Reuters) - Clive Davis, the music mogul that launched the the career of Whitney Houston and orchestrated Carlos Santana's phenomenal return to the top of the charts, has resurfaced as part owner and top executive of a new label in the Bertelsmann AG family. Against the backdrop of tense negotiations, Davis, 67, left the top post at Bertelsmann's Arista Records, the label he founded 25 years ago, after his contract expired, and was replaced by rap music executive Antonio "L.A.'' Reid. The move elicited outrage from Arista's artists, including Houston.

But on Thursday, Davis characterized his mood as "flowers and champagne,'' as he claimed the post of chairman and chief executive of J Records, which will be 50-percent owned by Davis and 50-percent owned by BMG Entertainment, Bertelsmann's $4.7 billion music arm.

Sources familiar with the situation said BMG will pour between $150 million and $175 million into the new label, a figure that dwarfs the $10 million Davis originally invested in Arista in 1975.

"This is the largest investment made in a joint venture in the history of the record business,'' Davis told Reuters in an interview. "This is not a startup. When we will open our doors on Monday, we will be a major record label with our own marketing staffs, our own promotion staff. It's unprecedented. And it's a very fulfilling dream.''

In comparison, sources say labels like Dreamworks Records, which is part of Steven Spielberg, Jeffery Katzenberg and David Geffen's Dreamworks empire, and Interscope Records, the Universal Music unit co-founded by record producer Jimmy Iovine, were each started with $40 million.

Neither company was immediately available to confirm their start-up investments.

The foundation of J Records' roster will come from Arista, although some of Arista's top tier acts, such as Houston and Santana, whose comeback last year was masterminded by Davis, will remain on Davis' original label. Davis will retain the option of being an executive producer of such artists in the future.

The J Records roster will include million-selling acts like rhythm & blues artists Deborah Cox, LFO, Next and Q-Tip, who was previously with the hip hop outfit A Tribe Called Quest.

The announcement is the culmination of months of speculation, when rumours started circulated in November that Davis was being forced out of his role at Arista.

Davis downplayed the notion that there was ever any bad blood between Davis and BMG's management.

"From day one, they offered me a 50 percent stake (in a new company) and unprecedented funding that the industry has never seen. When you add to that artists ... of this nature, you can only be complimented.''

Asked why BMG had to form a new label to accommodate Davis instead of letting him continue to run Arista, he said, "I was at the end of a contract. It was certainly easier for me to get 50 percent of a company in this manner than to evaluate a company like Arista that was worth, perhaps, $3 billion.''

Since a singular major equity interest was an essential part to any deal to Davis, this arrangement "made the most sense.''

He said he had fielded offers from competing labels, Wall Street, Internet ventures and startup labels, but "...with those companies I would not have been able to get my distributor the leverage that BMG distribution has,'' he said. "Plus none of them would allow me to continue with my key artists, like Whitney (Houston) and Carlos (Santana).''

Prior to founding Arista, he was president of Columbia Records, where he signed such artists as Bruce Springsteen, Billy Joel, Chicago and Janis Joplin, during his six-year tenure. He was fired from Columbia for using corporate funds for personal use, and pleaded guilty to income tax evasion in 1975.

That year he founded Arista, where he would later sign Houston, who had a string of 19 Top 10 hits, 11 of which went to No. 1 on the Billboard pop charts.

Last year, Davis shepherded Santana's album Supernatural to the top of the charts, the first number one for that artist since 1971. The album won nine Grammy awards, including two for Davis himself for his work as a producer.