WILL EC BLOCK AOLTW?

Seems the European Commission is circulating a preliminary proposal to block the Time Warner-America Online merger, according to the online version of the Wall Street Journal.

While such a proposal may be pro forma, some insiders feel it could reflect a growing apprehension about the power of a vertically integrated entertainment giant. But other wonder how much jurisdiction the EU really has over the conjoining of two American corporations, behemoths though they may be.

Indeed, the EU's Merger Task Force itself is widely perceived as overburdened, disorganized and insufficiently informed about developing markets, according to analysis in London's Financial Times.

Sources at Warner Bros. declined to comment on today's developments. AOL and TW shares slumped in the wake of this and other setbacks for their marriage and for TW's proposed nuptials with EMI, though both regained some ground today.

Meanwhile, Time Warner and EMI submitted an informal list of potential concessions to European antitrust authorities today in a final bid to ward off a veto of the planned $20 billion joint venture of their music businesses (hitsdailydouble.com, 9/14).

EU Competition Commissioner Mario Monti chaired a one-hour meeting this morning with senior executives from both companies, including EMI Chairman Eric Nicoli, CEO of EMI Recorded Music Ken Berry, Warner Music Chairman Roger Ames and Time Warner Chairman Richard Parsons.

"The meeting took place this morning. The merging parties made proposals which they have yet to formalize," said Monti's spokeswoman Amelia Torres. "We need to examine these proposals and they need to be formalized by the parties."

Torres added that theEC would be studying the proposed concessions and consulting competitors on whether they believed the concessions were enough.

"At this stage," Torres said, "it is impossible to say anything else regarding the content of the proposals and what our view is."

The deadline for submission of remedies in the case is midnight local on Tuesday (9/19). The commission has previously opposed the merger on the grounds that it could lead to collusion among a handful of global recording companies and dominate the markets for online music delivery.

The commission has drawn up an internal draft decision to veto the deal ahead of a meeting of antitrust officials from individual European countries later this month. But the companies and the commission insist that this document is irrelevant because it doesn't benefit from a formal consideration of concessions (hitsdailydouble.com, 9/15).

An EMI spokeswoman played down the significance of the draft negative statement, saying that this was "standard procedure" at this stage as negotiations continue. "There's an ongoing dialogue with the [commission's] merger task force, and the discussions are over a settlement," she told the Wall Street Journal, declining to discuss any concessions that EMI might offer.

People familiar with the situation say Time Warner is flexible about the concessions it needs to make to get the deal done.

The Wall Street Journal reports that the EMI acquisition also faces antitrust objections in the U.S., where the Federal Trade Commission has told the companies that it may block the deal or seek changes to reduce the combined companies' market power, people close to the case have said.

One person familiar with the situation says the companies have put forward a long list of written concessions they are prepared to make. The source said the concessions apply on a country-by-country basis, covering both the publishing and the recorded-music business in different genres of music, making the net impact of the concessions difficult to sum up. The person noted that the companies "are willing to do quite a lot to satisfy regulatory concerns." But the concessions offered so far aren't final, and are still subject to negotiations.

However, there may not be much room for negotiating. Generally speaking, the later that companies submit potential remedies to the commission, the less time the commission has to "market test" them among interested third parties and if necessary, work with the companies to modify the proposals.

If the remedies address the key concerns of the commission and third parties, a deal is likely to be cleared in conjunction with remedies. The commission has refused to consider some remedies submitted after the deadline in several recent cases that ended up being blocked or withdrawn.

In a speech today, Monti pointed out several areas of concern, including piracy, distribution and licensing of music on the Net, the role of royalty collection societies and the competition problems posed by the Web, which go beyond defining the market and marketshare.

"It may also be necessary to look at the structures of industries like music and publishing, to see whether the commercial interests in maintaining the status quo is hampering the development of Internet services," said Monti.

EMI shares fell 15 pence to 546 after hitting a nine-month low last week on concerns the merger would be quashed. Time Warner shares rose 1 3/4 to 81 9/16.

The deadline for the EC's decision on the EMI/Warner merger is Oct. 18, and for the AOL-TW pairing, it occurs the week after, Oct. 24.