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WARNER MUSIC, BMG AGREE
TO KEEP MEETING
Negotiators Decide to Keep at It, as End of Exclusivity Period Looms
Although a merger deal has yet to materialize, execs from AOL Time Warner and Bertelsmann meeting in London this week have apparently agreed to continue talks and try to come to terms on how to merge Warner Music Group and BMG.

The London talks, reportedly attended by AOLTW’s Jeff Bewkes, WMG head Roger Ames, Bertelsmann CFO Siegfried Luther and BMG COO Michael Smellie, among others, had been characterized as a “do or die” meeting for the purpose of determining whether the parties have a reasonable chance of reaching an agreement. According to the New York Post, the execs determined yesterday that they would keep plugging away.

AOLTW and Bertie have been in exclusive merger talks for some time, and their exclusivity agreement, which has been extended at least twice before, is due to expire next Monday (9/15), according to the Post. Those currently meeting in London are expected to continue to talk through the end of the week to try to get the joint-venture deal done.

The WMG/BMG talks have faltered recently over the two sides’ inability to resolve valuation issues, reportedly due to their very different accounting methods. Should the exclusivity window close without a deal, EMI is said to be waiting in the wings with a cash and stock offer for WMG.

In terms of structure, insiders have reported that WMG has been insistent that Ames be given control of the merged music company, leading to speculation as to what that would mean for BMG’s Rolf Schmidt-Holtz. One exec has said Schmidt-Holtz may take on a “non-operational” role in a merged organization and be “basically in charge of second-guessing Ames.”

Meanwhile, rumblings inside both companies point to each proceeding with consolidation of its labels as soon as a merger deal is announced and completing that consolidation regardless of whether the merger gains approval or is nixed by regulators. Insiders say both WMG and BMG are likely to reduce their number of label operations in the U.S. from three to two. On the BMG side, Clive Davis will likely play a significant role in reshaping the company’s U.S. presence.

According to new International Federation of the Phonographic Industry figures released yesterday, WMG’s 2002 global marketshare was 11.9%, up from 11.8% the previous year. BMG's 2002 figure rose to 11.1%, up from 8.2% the year before.

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