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"If they sold Virgin and Chappell, we would be satisfied."
—Philippe Kern, secretary general of independent music company association Impala

WMG-EMI MERGER INCHES CLOSER TO APPROVAL

But Mama Always Said Close Only Counts In Horseshoes And Hand Grenades
Some independent record companies have told the European Commission that if Warner Music Group and EMI sell Virgin Records, antitrust concerns in the proposed music joint venture are moot.

According to published reports on both sides of the Atlantic, European regulators are now considering approving the proposed $20 billion venture. Industry officials said Wednesday that Mario Monti, the European commissioner in charge of competition issues, will reconvene the advisory group Thursday (10/5), which had already rejected the deal a week ago at his urging.

The EU's Advisory Committee on Mergers is scheduled to meet Thursday to consider the last-minute offer to sell off large parts of their combined business.

Though Monti has not made his views known, people close to the EC said that he would not go to the trouble of summoning regulators from their countries if he did not feel a need to change his recommendation.

Independent music companies, concerned with the dominant marketshare of a merged AOL-TW-EMI, and on whom the EC has relied to assess the impact of the proposed venture, met with Monti Monday to discuss EMI's latest proposals.

As first reported here, the proposed sales of Chappell Music and Virgin Records (hitsdailydouble.com, 9/27) were added to previous concessions that included divesting in Virgin Songs as well as in labels in three European countries. The companies also offered to close CD manufacturing plants in Europe and addressed concerns about the future implementation of online music distribution.

Philippe Kern, secretary general of independent music company association Impala, told the Financial Times Tuesday (10/3) that the disposal of Virgin would significantly reduce EMI's marketshare. "If they sold Virgin and Chappell, we would be satisfied," he said.

The independents reportedly told Monti that selling Virgin would address concerns related to the deal, according to several people present at the meeting. This is a significant change of heart, since the independents have criticized the deal all along and had dismissed the company's previous concessions as a farce.

The sale of Virgin, whose artists include Janet Jackson, David Bowie and the Rolling Stones, would reduce EMI's marketshare in Europe to around 8% from about 14.4%. WMG's European marketshare is about 15%.

Word of the possible sale of Virgin has already sparked interest among many potential buyers.

The company, which EMI purchased in 1992 for close to $1 billion, could be snatched up by founder Richard Branson, Jive Records, a Ken Berry-Branson-backed venture, a Berry-Clive Calder pairing or any combination thereof, sources said. The label, which has its own Euro distribution in place, could fetch between $1.5-$2 billion. Meanwhile, the publishing interests being offered have a market value of approximately $1.5 billion, sources said.

In a statement Jive confirmed that it would indeed be interested in buying Virgin were it to come on the market and that financing the purchase would "not be a problem."

"We have worked closely with management at Virgin Records in many countries for the past four years, and we are confident that the cultures of our two companies could be a perfect fit," a spokesman for Jive said.

"We're going to watch what happens at the European Commission, and, obviously, if that is the decision that [it] takes and that is the offer that is made, then we'd look at it," a spokesman for Branson's London-based Virgin Group told the Wall Street Journal.

Under EC rules, the watchdog must reach a final decision on the WEMI deal by Oct. 18 and on the AOL-TW venture by Oct. 24. The EC is expected to rule next Wed., Oct 11.

Even if the EC decides to give its approval, WMG-EMI still needs to clear U.S. watchdog the Federal Trade Commission, which may also want to take a bite. In addition, EMI shareholders will likely have to approve the merger once again, now that the shape of the deal has been significantly altered.

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