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EMI stock was down 8% this morning on news of the Court’s decision, but analysts insist “potential merger synergies remain highly attractive,” suggesting that WEMI would avoid “added complications of a Sony hardware-related dominance argument.
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SONY BMG, WMG-EMI?
Court Ruling Means Commission Must Reconsider Merger, Decide Whether to Challenge Decision
Now that the European Union Court of First Instance—the EU’s second-highest court—has overturned the European Commission’s approval of the Sony BMG merger, what happens now?

This marks the first time the courts have overturned a Commission clearance of a deal, backing the challenge from independent record label group Impala, which represents 2,500 indie music firms. The court said regulators did not properly show in 2004 that there was not a monopoly position before the deal or that there would not be one afterward because there were a variety of products on the market and no open disputes between the five main companies.

The court found that regulators did not properly support a theory that promotional discounts ultimately prevent a monopoly from occurring.

It also said regulators were wrong to rely on the absence of evidence that record companies had used retaliatory measures in the past. The court said that it found proof of ''effective deterrent mechanisms'' such as the possibility of hurting an errant record company by excluding it from compilations.

Sony and BMG must now resubmit their applications for antitrust clearance—based on current market conditions—within seven days, said EU spokesman Jonathan Todd.

''We will study the ruling carefully, but it is clear that we will have to re-examine the merger,'' he said.

The EU must carry out a new analysis of the deal, but will have to stick to deadlines used before it reformed merger rules in 2004—meaning they will have one month from Sony BMG's new filing to approve it or open an in-depth probe. This means a decision from regulators won’t come until late-August. Todd said the Commission had two months to decide if it would appeal the court ruling.

Analysts feel the announcement does not openly rule that the Sony BMG merger should not be approved, it only rules the process of the July 2004 approval was flawed. Pointing out that Sony BMG’s marketshare since the merger has declined from 25%-20% between, experts feel the deal will ultimately be approved.

EMI stock was down 8% this morning on news of the Court’s decision, but analysts insist “potential merger synergies remain highly attractive,” suggesting that WEMI would avoid “added complications of a Sony hardware-related dominance argument.”

EMI sources said ''detailed study'' would be required before any wider conclusions about a deal could be made, but noted that the ruling was about the ''particular evidence'' presented in the Sony BMG case.

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