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U.S. and European Regulators Approve Universal’s Purchase of EMI U.S. and European Regulators Approve Universal’s Purchase of EMI
(about 2 hours later)
American and European regulators on Friday approved a reduced version of Universal Music’s $1.9 billion takeover of EMI Music, allowing Universal to expand its dominance as the world’s largest music company but significantly paring down its ambitions. The Universal Music Group received regulatory clearance in Europe and the United States on Friday for its $1.9 billion takeover of EMI Music, the storied British record label behind the Beatles, the Beach Boys, Norah Jones and Coldplay.
To win the approval of the European Commission, Universal agreed to divest itself of about a third of the assets of EMI, including most of Parlophone, its flagship label in Europe, along with a number of formerly independent labels and nine national subsidiaries of EMI across Europe. Universal will also sell a handful of its own assets, and it agreed to a set of market controls that will govern how it handles contracts with digital music services.   The deal allows Universal to expand its dominance as the world’s largest music company, but the compromise it struck with regulators significantly pares down its ambitions.
The divestments include global rights to release the music by the artists on those labels, which means that EMI will no longer release records by some of its biggest acts, including Coldplay, Pink Floyd, Kylie Minogue and David Guetta. One consolation for Universal is that it will not have to sell recording rights for the Beatles or Robbie Williams, one of EMI’s biggest acts in Britain. After months of tense negotiations, Universal agreed to divest  itself of about a third of the assets of  EMI, including most of Parlophone, EMI’s flagship label in Europe, along with a number of formerly independent labels, nine national subsidiaries of EMI across Europe and other rights. Universal will also sell a handful of its own assets, and it agreed to a set of market controls that will govern how it handles contracts with digital music services.  
The commission, the executive arm of the European Union, said in a statement that the asset sales allayed its concerns about the combined  group’s market power, and that it paid particular attention to the merger’s effect on the digital music market. The European Commission’s approval was announced on Friday morning in Brussels, and the Federal Trade Commission followed with its clearance shortly thereafter, calling for no additional concessions. The deal is expected to close within a week.
“Competition in the music business is crucial to preserve choice, cultural diversity and innovation,” Joaquín  Almunia, the European Union’s competition commissioner, said in the statement. “In this investigation, we have paid close attention  to digital innovation, which is changing  the way that people listen to music. The very significant commitments  proposed by Universal will ensure that  competition in the music industry is preserved and that European consumers  continue to enjoy all its benefits.” In a statement, Vivendi said it was pleased with the result and that the deal would help Univeral remain “true to its vision: to invest in talent and grow the company to offer consumers more music and more choice.”
The total value of the assets to be disposed of was unclear. They are said to generate about $450 million in annual revenue in Europe, but the global rights could add considerably more. Universal’s deal for EMI, reached last November with Citigroup, was closely scrutinized on both sides of the Atlantic, with independent music groups, consumer advocates and major rivals contending that it would give Universal too much market power. Much of the concern centered on the new digital music market, in which, these critics argued, control of a large share of the available content could give any label too much of an advantage.
The Federal Trade Commission on Friday also gave its approval, with no additional terms. As a result of its acquisition of two-thirds of EMI, Universal will have about 36 percent of the world’s recorded music market, according to figures from Music & Copyright, a British trade publication. Sony Music Entertainment, the next largest company, has a 21.6 percent share, and Warner Music Group, the only other major, has 15 percent.
A little more than a decade ago there were six major labels, but because of consolidation there are now three. Piracy and shifts in consumption patters have also greatly altered the music business. In 1999, the wholesale value of recorded music sales around the world was $28.6 billion, according to the International Federation of the Phonographic Industry; last year it was $16.6 billion.
The European Commission, the executive arm of the European Union, said in a statement that the asset sales allayed its concerns about the combined group’s market power and the effect on cultural diversity in Europe.
“Competition in the music business is  crucial to preserve choice, cultural diversity and innovation,” Joaquín  Almunia, the European competition commissioner, said in the statement. “In this investigation, we have paid close attention  to digital innovation, which is changing  the way that people listen to music. The very significant commitments  proposed by Universal will ensure that  competition in the music industry is preserved and that European consumers  continue to enjoy all its benefits.”
Even with such large concessions, opponents of the deal complained that it would allow Universal to grow even bigger.Even with such large concessions, opponents of the deal complained that it would allow Universal to grow even bigger.
“It’s good to see that the commission has seen this deal as such a threat to the market that it has demanded and received truly swinging commitments on divestments,” said Martin Mills, chairman of the Beggars Group, an independent company whose acts include Adele and Vampire Weekend. “However, that should not conceal that fact that Universal’s arrogance has paid off for them, that they have destroyed a significant competitor, and that even with these divestments their ability to dominate and control the market has reached even more unacceptable levels.” “It’s good to see that the commission has seen this deal as such a threat to the market that it has demanded and received truly swinging commitments on divestments,” Martin Mills, chairman of the Beggars Group, an independent company whose acts include Adele and Vampire Weekend, said in a statement. “However, that should not conceal that fact that Universal’s arrogance has paid off for them, that they have destroyed a significant competitor, and that even with these divestments their ability to dominate and control the market has reached even more unacceptable levels.”
Universal said in a statement that it was “delighted to have received regulatory clearance” for the deal. Universal’s divestments include the right to release music by stars like Coldplay, Pink Floyd, Kylie Minogue and David Guetta around the world. One consolation for Universal is that it will not have to sell recording rights for the Beatles or Robbie Williams, one of EMI’s biggest acts in Britain. Universal also agreed to forgo so-called most favored nation clauses in contracts with digital music services for 10 years, which could help smaller labels negotiate for favorable terms.
The deal has already been cleared in Australia, Canada, Japan and New Zealand. The total value of the assets to be disposed of was unclear. They are said to generate about $450 million in annual revenue in Europe, but the global rights could add considerably more.
The takeover would advance the corporate consolidation of the music industry that has been under way for more than a decade. But for Universal and its parent company, the French media and telecommunications conglomerate Vivendi, the EMI ruling is a painful victory. Those assets will now go up for sale in an auction that is expected to be run by Goldman Sachs. According to European law, Universal must complete the sales within six months. But in a condition placed on the deal by the European Commission, buyers must “have a proven track record in the music industry,” which music executives and analysts on Friday interpreted as excluding private equity bidders.
The negotiations with European regulators went on for months and were tense because of serious concerns that the deal would have allowed Universal to worsen the licensing terms it offers to digital platforms such as Spotify and those operated by Apple that sell music to consumers. The most likely buyers for disposed assets, analysts said, were Warner Music and BMG Rights Management, which is backed by Kohlberg Kravis Roberts. But the sale conditions may also make it easier for independent labels to participate.
“This has been one of the most difficult discussions,” said Mr. Almunia, who said one of the main challenges he faced was preservation of cultural diversity and innovation amid a further consolidation of the music industry. In a memo to EMI employees on Friday, Roger Faxon, the label’s chief executive, said he expected Universal to “finally take control of this great and historic business” on Sept. 28. He also said that he and the label’s chief financial officer, Ruth Prior, would resign at the end of next week.
The difficulty for Universal was rooted in the unusual structure of the deal, which was struck with Citigroup in November: in it, Universal agreed to pay Citi the full price of EMI, regardless of regulatory approval. (Its first payment — about $1.75 billion, or 90 percent — was made earlier this month, and the balance is due when the deal closes.) Although the F.T.C. cleared the deal with no additional concessions, its investigation lasted most of the year, and the negotiations in Europe were contentious.
“This has been one of the most difficult discussions,” Mr. Almunia said in a news conference in Brussels. The difficulty for Universal was rooted in the unusual structure of the deal, which was struck with Citigroup in November: in it, Universal agreed to pay Citi the full price of EMI, regardless of regulatory approval. (Its first payment — about $1.75 billion, or 90 percent — was made earlier this month, and the balance is due when the deal closes.)
Citi seized EMI in early 2011 after the label’s previous owner, the private equity firm Terra Firma, defaulted on a $5.4 billion loan. In a parallel deal reached last November, an investor group led by Sony paid $2.2 billion for EMI’s music publishing assets. That deal closed in June.Citi seized EMI in early 2011 after the label’s previous owner, the private equity firm Terra Firma, defaulted on a $5.4 billion loan. In a parallel deal reached last November, an investor group led by Sony paid $2.2 billion for EMI’s music publishing assets. That deal closed in June.
Universal’s agreement with Citi put pressure on its executives to preserve as much of EMI as possible, since the company would face losses if it were forced to sell assets for less than it paid. In addition, Universal had estimated $160 million a year in savings by merging the two companies, but not all of those savings would be realized from a diminished EMI.Universal’s agreement with Citi put pressure on its executives to preserve as much of EMI as possible, since the company would face losses if it were forced to sell assets for less than it paid. In addition, Universal had estimated $160 million a year in savings by merging the two companies, but not all of those savings would be realized from a diminished EMI.
In late July, Universal offered to sell about two-thirds of EMI’s holdings in Europe, including much of Parlophone. Also included were the former independent labels Chrysalis, Mute and Ensign; EMI Classics and Virgin Classics; EMI’s share of the profitable pop compilation series “Now That’s What I Call Music!”; and EMI’s subsidiary companies in Belgium, France, Sweden and other countries. In Brussels, Mr. Almunia said that under the terms of the clearance, two-thirds of Universal’s divestitures should go to one buyer to create another heavyweight competitor with market power, and the remaining third should go to create another significant player in the industry.
The divestment package that the European Commission agreed to will include those pieces with some additions, as well as global rights. “We cannot impose a buyer,” said Mr. Almunia, but he warned that if he saw “new threats to competition” emerging as a result of the divestitures he could take further action to ensure a competitive music market. Universal’s divestment package is widely considered in the music industry to be very large, although quibbles surfaced quickly on Friday about the true value of some of the headline names in the package.
Universal also agreed to sell some of its own properties, including the Sanctuary label and Co-op Music, a label licensing business, as well as its share in Jazzland label and its Universal Greece subsidiary.
The commission said that Universal cannot reacquire the divested assets. According to European law, it also must sell the assets within six months, with the sale subject to monitoring by European authorities.
Universal’s divestment package is widely considered in the music industry to be very large, although quibbles surfaced quickly on Friday about the true value of some of the headline names in the package.
“Pink Floyd has a contract with EMI that expires in 2015, so that divestment is not worth as much as the artists signed to long-term contracts,” Alice Enders, of the British firm Enders Analysis, wrote in an e-mail. “Pink Floyd had famously sued EMI in 2010 to prevent the unbundling of the tracks on their iconic albums on iTunes, which it won based on the terms of its 1999 contract, and it restricts the exploitation of its catalog on Spotify and other digital music services.”“Pink Floyd has a contract with EMI that expires in 2015, so that divestment is not worth as much as the artists signed to long-term contracts,” Alice Enders, of the British firm Enders Analysis, wrote in an e-mail. “Pink Floyd had famously sued EMI in 2010 to prevent the unbundling of the tracks on their iconic albums on iTunes, which it won based on the terms of its 1999 contract, and it restricts the exploitation of its catalog on Spotify and other digital music services.”
The damage to Universal and Vivendi could be minimized if Universal can get good prices for the divested assets. Several parties are said to be interested, including BMG Rights Management, a joint venture between Bertelsmann and Kohlberg Kravis Roberts. Daniel Miller, who founded the Mute label in 1978 and sold it to EMI in 2002, has also expressed interest in buying it back.The damage to Universal and Vivendi could be minimized if Universal can get good prices for the divested assets. Several parties are said to be interested, including BMG Rights Management, a joint venture between Bertelsmann and Kohlberg Kravis Roberts. Daniel Miller, who founded the Mute label in 1978 and sold it to EMI in 2002, has also expressed interest in buying it back.
Mr. Almunia said the new market share on average across Europe would be below 40 percent after the merger, and he explained that under the terms of the clearance, that two-thirds of the total divestitures by Universal should go to one buyer to create another heavyweight competitor with market power. Some analysts believed that the deal may turn out well for Universal, and that the company will still be likely to find significant savings through the merger, even with disposals.
Mr. Almunia said that the remaining third of divestitures should go to create another significant player in the industry. “In many ways, Unviersal and EMI must be reasonably happy,” said Claudio Aspesi, a media analyst at Sanford C. Bernstein & Company in London. “They would probably prefer to buy the whole thing, but still they are much better of than they were yesterday.”
“We cannot impose a buyer,” said Mr. Almunia, but he warned that if he saw “new threats to competition” emerging as a result of the divestitures he could take further action to ensure a competitive music market.

Ben Sisario reported from New York and James Kanter from Brussels.

Ben Sisario reported from New York and James Kanter from Brussels.