"It became clear that holding to the truncated timetable could result in the deal being approved, but on terms that were not attractive for EMI or Time Warner."
—EMI's Ken Berry


Is Their Future Really So Bright
They Gotta Wear Shades?
Thursday's news of the scrapping of the proposed Warner Music Group-EMI $20 billion merger has sparked industry insiders, company executives, media analysts and others to ponder what the companies have planned for the future and what direction they will follow to salvage their music operations.

The companies' top-level executives have spent more than a year working out deal points that should have guaranteed regulatory approval all the while combating worldwide anti-merger sentiment. A particularly active European Commission, led by Competition Commission Mario Monti, proved non-flexible, and after weeks of negotiations acceptance of the deal seemed less and less plausible.

During this time, insiders note WMG chief Roger Ames and EMI topper Ken Berry have been almost 100% focused on getting this merger passed, thereby putting day-to-day label group operations on the back burner. Sources said both groups have suffered due to the proposed joint venture, as changes within both companies are necessary and have yet to be addressed. Both WMG and EMI, who rank fourth and fifth among the five music giants in marketshare, have seen better times.

Ames, who was hired in August 1999 to restore WMG to its glory days, was given a mandate to increase the company's marketshare and re-establish Warners as the world's top music company. EMI lifer Berry, meanwhile, oversees a company whose current label operations are struggling, and whose top-ranking publishing group, arguably, is keeping the rest of the corporation afloat. Sources said the duo, who believed the deal would have no trouble passing regulatory, put off making executive changes within their companies because a merger would make such moves redundant since a newly formed WEMI would call for a massive staffing overhaul.

The collapse of the deal is a blow to WMG's efforts to expand its music business overseas, but raises even more serious questions about EMI's future. Executives at EMI said life as a "stand alone company is the second best strategic option." EMI is now free to talk to other potential suitors that approach it, though the British company isn't allowed to solicit any other offers until the end of January, according to a Securities and Exchange Commission filing Thursday night by Time Warner.

The two companies, who officially proposed the merger of their music interests in January, withdrew their plans Thursday (10/4) after it became clear the EC was going to veto the deal (hitsdailydouble.com, 10/4).

The annulment of the deal came before a formal veto was voiced, which would have prevented the parties from returning with a re-drafted plan.

The annulment is likely to prompt other music and media companies to look again at a possible acquisition of EMI or parts of its business, especially lucrative EMI publishing, the tops in the world. But analysts noted that the other record majors would likely face the same antitrust obstacles in Europe that stop the WEMI deal. However, entertainment companies like Walt Disney, Fox, Viacom, Telefnica and others, who lack a global music industry presence, wouldn't face such problems.

Before the EC announced its planned veto, regulatory officials had drafted a decision to turn down the deal despite WMG-EMI offers to sell off Virgin Records and about 25% of its combined publishing interests including Chappell Music and Virgin Songs, which was first reported here (hitsdailydouble.com, 9/27).

EMI and Time Warner had been in negotiations with the EC, discussing a range of possible concessions aimed at responding to EC concerns while trying to preserve the economic merits of their proposed joint venture.

While the two have terminated their current agreement, they've agreed to continue discussions with each other, the commission and other regulators, in an attempt to achieve a "combination which is acceptable to all parties," according to an EMI statement, which goes on to say any new agreement will obviously be subject to shareholder approval.

Time Warner President Richard Parsons said the congloms would "continue to explore ways to structure a combination that will make sense for the two companies and be acceptable to the commission." EMI Chairman Eric Nicoli added that his company would continue to look for a solution to antitrust concerns, but reassured that this would not be at the expense of shareholder interest.

"The withdrawal of our application allows additional time to reassess regulators' concerns and to pursue solutions simultaneously in Europe and the U.S.," Nicoli said in a statement. "We have been, and will continue to be, flexible in responding to the European Commission's concerns. However, any concessions that are ultimately made must be consistent with our shareholder value objectives."

Parsons said, "Our proposed joint venture with EMI would bring together two of the most creative and complementary organizations in the worldwide music industry. Because of our confidence in this combination's potential to deliver extraordinary dividends to our artists, employees, shareholders and music lovers around the world, we will continue to explore ways to structure a combination that will make sense for the two companies and be acceptable to the commission."

In an internal memo circulated to all EMI employees, Berry said the length of time that the EC took to investigate competitive issues in music and publishing plus the vertical integration arising from the Internet cut into the companies' ability to address those concerns.

"It became clear that holding to the truncated timetable could result in the deal being approved, but on terms that were not attractive for EMI or Time Warner," Berry said. "So, after consultation with the EC, it was decided the best plan was to withdraw our merger from consideration to give us a chance to review alternative structures that would meet the concerns ultimately identified by the commission."

In an internal memo to his troops, Ames said, "We have pulled back from the deal because it is in the best interests of the Warner Music Group. We are going to keep talking. This gives us a chance to review our alternative proposals to meet the concerns of the EU."

And, of course, the EC issued a statement as well. "EMI and TW provided informal proposals that improved substantially the initial remedies, but the commission still had doubts and, in view of the late stage of the procedure, could not properly evaluate the undertakings."

Despite the players' agreement that attempts at a new deal may be initiated and subsequently resubmitted to the EC, highly placed sources said the companies will likely move on in separate directions, entertaining other options.

Meanwhile, a chorus of cheers arose from WMG and EMI competitors like Disney and Universal Music Group, who had reportedly lobbied strongly against the deal.

"I'm very glad the EMI/Warner merger is off," Tess Taylor, president of the National Association of Record Industry Professionals, told Reuters. "It's better for our industry, artists and consumers. Just imagine if 90% of the world's music copyrights were under one roof, which would have been the case had the EMI/Warner deal gone through. That's such an imbalance in the marketplace that it's frightening,'' she said.

With WEMI no longer a factor, the commission is expected to green-light the much larger AOL-TW merger proposal. The WMG-EMI deal was considered a major stumbling block on the road to AOLTW. Officials had been worried that the new combination would dominate the online market for music distribution and reduce the number of major labels from five to four.

The EC's muscle-flexing in the WEMI proposition has caused some on both sides of the Atlantic to question whether the watchdog actually overstepped its bounds.

In related news, the leaders of the U.S. Senate Antitrust Subcommittee called on Euro authorities to steer clear of "protectionist sentiments," saying they are alarmed by foreign regulators' recent rejections of mega-mergers involving American companies, according to the Washington Post.

Senators Mike DeWine (R-OH) and Herb Kohl (D-WI) sent a letter to Monti that was highly critical of what they characterized as a disturbing recent trend on the part of European authorities ofdiscriminating against American companies.

The senators were quick to point out that, while the EC has blocked such potnetial unions as WMG-EMI and WorldCom-Sprint, it will likely approve the non-American acquisition of Canada's Seagram by France's Vivendi.

"We are troubled by the possibility that your analysis and outcomes have been influenced in part by pan-European protectionism rather than by sound competition policy," wrote DeWine and Kohl.

"Lockdown" and Lana. (10/25a)
Grammy-themed, just like our latest print magazine. (10/25a)
Audiences embrace Adele regardless of the platform. (10/25a)
Aaron's latest hire. (10/25a)
Can you hear the Grammy buzz? (10/25a)
Adele; Adele Adele?
A... dele?
Adele Adele; Adele.

 First Name

 Last Name


Captcha: (type the characters above)