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UMG’s response to the EC’s massive statement of objections is focused on getting its combined marketshare with EMI below 40% in every European member state

UMG SCRAMBLES TO SAVE EMI DEAL

Grainge Enriches the Pot With a First-Right Offer to Indie Labels, Plus a Pledge of Financial Support to Help Them Pay for Divested Assets
UMG has made a sweeping offer to sell parts of EMI to independent labels, in a last-ditch attempt to secure clearance for the $1.9 billion deal from regulators on both sides of the Atlantic, the Financial Times reported late Wednesday.

Lucian Grainge has offered the indie labels repped by Impala a first right of refusal to bid for repertoire and rights worth €250m in annual revenues, as well as a €25m “funding mechanism” including €15m to help Impala buy these assets.

In a July 13 letter, Grainge told Impala he was prepared to sell pop, classical and jazz assets including Chrysalis U.K. (with the exception of Robbie Williams), Ensign, Mute, Virgin Classics, Jazzland and Sanctuary. Universal was scrambling on Wednesday to assemble a package of concessions to the European Commission based in part on this proposal after being told that its original pitch wasn’t sufficient to satisfy the EC.

UMG’s response to the Commission’s massive statement of objections is focused on getting its combined marketshare with EMI below 40% in every European member state, people familiar with the negotiations told FT. Disputes between the two sides over whether to include distributed labels in marketshare calculations have held up the process.

As our own I.B. Bad noted in his latest column, posted July 13, UMG’s biggest problem isn’t that the EMI acquisition will be vetoed—a highly unlikely outcome considering that 25 of the last 27 deals that went to a Phase II were eventually approved by the EC, including Sony-BMG. Rather, it’s that these stipulated divestitures as conditions of regulatory approval could result in a buyers’ market, and the selling off of assets at below market value could conceivably turn what initially appeared to be a good deal into a not-so-good deal.

Any delay risks pushing the Commission’s verdict on the deal beyond the Sept. 11 deadline for UMG to pay Citigroup nearly the entirety of the $1.9 billion it agreed to shell out for EMI.

Universal’s courting of small labels has split the indie sector. Impala’s members failed to find the two-thirds majority needed to support UMG’s proposals this week, but digital rights group Merlin voted unanimously to oppose a deal it said would have “a devastating impact.”

Impala co-founder Patrick Zelnik, whose support for the deal was the first of this week’s shockers—the second was the revelation that Zelnik planned to join Richard Branson in a possible bid for Virgin Records—told the FT he planned to resign from Impala, saying it hadn’t respected its mission.

Falling in behind Zelnik was Kenny Gates of indie distributor PIAS, who said he appreciated Grainge’s “strong” proposals and may bid for some EMI assets. Additionally, Daniel Miller, who sold Mute to EMI, said he supported UMG’s proposal and was interested in buying back Mute.

But outspoken opponent Martin Mills, whose Beggars Group is Europe’s largest indie, held his ground, reiterating that a UMG-EMI merger would be unhealthy.


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