IS EMI-BMG DEAL DOABLE?

Speculation abounds (hitsdailydouble.com, 11/10) as BMG officials continue to offer nothing more substantial than confirmation that the company has "approached the Board of EMI Group regarding a possible combination of Bertelsmann Music Group with EMI." That statement, however, also carried the warning that the proposed transaction, at this time, "does not involve an offer being made for EMI."

While EMI confirmed that Bertelsmann wants to combine its music division with EMI, EMI head honcho Ken Berry has to take a long look, as he has been down this path before with Warner Music Group and also with BMG, which has come up short in these situations previously.

This time, BMG is willing to fold itself into EMI to keep the combined entity publicly traded. The Germans are also willing to allow the English to run the merged unit for a great deal of stock. Wonderers wonder if Bertelsmann would then have majority control.

According to a story in Tuesday's (11/14) Financial Times, the deal may focus on a cash payment to EMI shareholders. Bertelsmann would need to pay a dividend to EMI shareholders in order to obtain a 50.01% majority in the merged entity, the FT reported, estimating the deal would cost somewhere in the neighborhood of $2.3 billion.

Bertelsmann Chairman Thomas Middelhoff and EMI Chairman Eric Nicoli were expected to meet Tuesday in New York to discuss the terms, according to the FT.

"What we need now is a handshake at the top level so that we can go ahead and present the deal to investors," a negotiator for Bertelsmann told the FT.

With talk of a possible deal comes anxiety at BMG as merger mania takes hold of another company. Labels in play include Virgin, Capitol, Priority, RCA, Arista and the J Records joint venture. Word is a merged company would consist of only three labels in the U.S.

Such a union is sure to raise concerns at WMG, who are expected to make another run at EMI after parent Time Warner's deal with AOL closes. Will WMG try to convince the FTC to block an EMI-BMG deal as the French-owned Universal tries to influence the EU to come to the same decision?

However it works out, the merger would create the world's largest music company with a combined market share of about 25 percent.

Following WMG's failed attempt to merge with EMI, both companies are naturally cautious, not wanting to enter into a deal that wouldn't get past antitrust regulators.

The Hollywood Reporter reports that Bertelsmann has already approached the European Commission in Brussels to test the legal waters before closing a deal, sources close to the company said.

After the nine months the company spent hammering out the details in the failed WMG merger, both Berry and Nicoli are understandably cautious of another protracted negotiation, sources say.

Despite those fears, many analysts say EMI must make a strategic move if it wants to survive.

And speaking of Ken Berry…

If the merger goes through, many sources say Middelhoff is paving the way for Berry's rise to the top spot at the merged company, as well as looking at ways to expand the role of Jive Records' Clive Calder. The departure last week of BMG chiefs Michael Dornemann and Strauss Zelnick leaves a gaping hole at the top of Bertelsmann's music operation. Middelhoff brought in former BMG International chief Rudi Gassner, but the move is believed to be temporary.

Unlike Dornemann and Zelnick, Berry and Calder have long histories as music executives. Berry, along with wife Nancy (currently Virgin's worldwide president), are credited with signing The Rolling Stones, Garth Brooks, Smashing Pumpkins and Janet Jackson. Calder's Jive label currently counts Backstreet Boys, NSYNC and Britney Spears among its multimillion-selling ranks.

A top position in the merged company might serve as a sort of peace offering from Middelhoff to Calder, considering BMG took Calder to court for poaching NSYNC. Which could also pave the way for an extended association with Calder, since EMI already has a strong relationship with Jive. The British music giant distributes Jive Records in Latin America and parts of Europe.

With BMG's American distribution agreement ending in June, BMG would stand a better chance of retaining those rights if it was combined with EMI.

And while all this BMG-EMI talk was swirling, according to the Reporter, Vivendi announced a joint venture with Sony Music to launch a subscription-based Internet music service in the U.S. to compete with Bertelsmann's proposed venture with Napster.

"With Sony, who are joining us in this service, we will represent more than half the global market in albums," said Vivendi chairman and CEO Jean-Marie Messier in an interview in the French financial weekly Le Journal des Finances.

Vivendi declined to give details about the service it will offer with Sony.

Messier also emphasized that Vivendi Universal will continue its ongoing legal action against Napster, defying earlier calls by Napster head Hank Barry and Bertelsmann CEO Middelhoff to bury the hatchet and join the two firms in their development of a membership-based online file-sharing service.

"(Napster) has stolen from creators and music publishers for years," Messier said. "Not only have we already won the first phase of the legal action against Napster, but we will continue our action all the way to the end."

Like the presidential recount in Florida, this story is far from over.