WEMI: WAITING TO EXHALE

The European Commission has set a meeting of merger experts from the European Union states for Thursday (10/5), to discuss a proposal to clear the $20 billion joint venture of Warner Music Group and EMI.

Seemingly taking a turn toward a possible agreement, the EC is expected to weigh the new concessions WEMI is proposing to help make the deal happen, which include the sale of Virgin Records and about 25% of the unit's combined publishing (hitsdailydouble.com 9/27).

Time Warner music head Richard Parsons, WMG chief Roger Ames and EMI topper Ken Berry first served up the idea of selling Virgin Records and the Chappell part of Warner/Chappell last week in what was seen as a last-ditch effort to try to gain regulatory approval. These concessions were additions to a proposed divestment of Virgin Songs, three European labels and European CD manufacturing plants. The company has also addressed concerns about the future implementation of online music distribution, especially in a post-AOLTW world.

Virgin Records, which EMI purchased in 1992 for close to $1 billion, could be snatched up by founder Richard Branson, Jive Records, a 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.

"It can't be ruled out that things are moving,'' an EC source said Tuesday, referring to the possibility that the deal could be saved.

The commission was working on a proposal to present to the "extraordinary" meeting Thursday, but no firm decision had yet been made.

Last week, sources said the commission was planning to forbid the creation of WEMI on the grounds it would reduce the number of "major" record labels to four from five and allow the remaining players to collectively dominate the market.

The commission last Wednesday received the backing of merger experts from the 15 EU states for its plans to block the mergerduring a meeting of the Advisory Committee on Mergers. The deadline has now officially passed for EMI and WMG to offer concessions to deal with outstanding competition problems, although the commission has in the past allowed last-minute offers.

It is extremely unusual for the commission to call an extraordinary meeting of the Advisory Committee at such a late stage. A final ruling on WEMI must be filed by Oct. 18, six days before the ruling on AOL-TW is due. Sources said, however, that a decision on WMG-EMI would be made by 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.