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"We could at length set out here why the merger of two of the major record companies is anti-competitive (and is therefore a matter for the European Commission), but your organization and indeed IMPALA is already aware of this and indeed shares these views because they formed the basis of the referral of the proposed Sony/BMG merger."

LETTER FROM MOS TO AIM

Missive Asks for Explanation of AIM and IMPALA’s Endorsement of WMG-EMI
What follows is the meat of a letter sent yesterday by indie label group Ministry of Sound to U.K. trade organization the Association of Independent Music calling for a full explanation of the recent endorsement of a combined Warner Music Group and EMI Group on the part of international indie-label trade group IMPALA:

On 20th February 2007 (though the Press Release is actually dated 20th January 2007) IMPALA issued a press release stating that it had reached an agreement with Warner Music Group Limited (“WMG”) effectively not to oppose the possible acquisition by WMG of EMI Group PLC (“EMI”).

We do not believe that it can be disputed that in the past both AIM and IMPALA have always rigorously opposed the merger of any of the major record companies and so at the very least this action amounted to a complete departure from the stated constitutional aims of both Companies and prima facie not therefore in the best interests of the independent music industry.

We could at length set out here why the merger of two of the major record companies is anti-competitive (and is therefore a matter for the European Commission), but your organization and indeed IMPALA is already aware of this and indeed shares these views because they formed the basis of the referral of the proposed Sony/BMG merger.

In any event, before IMPALA could have approved such an agreement our client would have expected that there would have been the most careful canvassing of the issues by IMPALA of all of its members (and therefore by AIM of its members) and only then would any form of mandate have been given to open negotiations with WMG. There cannot be any doubt about this as the agreement by IMPALA to a merger by two of the majors is so contrary to the expressed aims of the representative trade organizations.

When Mr Presencer first found out about the press release, the matter never having been discussed with him before, he telephoned your Ms Wenham who made it clear to him that she was very unclear as to why IMPALA had approved the proposed merger, despite being a board member of IMPALA, and she requested that she should as Mr Mills to telephone Mr Presencer personally. We do not know if Ms Wenham had been involved at all in the decision to approve the proposed merger but her lack of clarity is a matter of serious concern.

Our client has since ascertained from Konrad von Löhneysen, who represents all IFPI organized independent music companies on the German board and who has in the past had constant discussions with IMPALA that he knew nothing in advance of the press release of any discussions between IMPALA and WMG.

There can simply be no doubt that the approval of this merger by IMPALA is not in the best interests of the members of IMPALA and AIM. Our client believes the negotiations themselves have taken place secretly and more importantly without any opportunity by the various trade organizations to make representations to IMPALA. Our client considers those persons who negotiated the “agreement” itself have acted unconstitutionally and contrary to IMPALA’s stated aims, and that they have ignored their obligations to IMPALA’s members and acted perniciously, seriously damaging the commercial future interests of the independent music industry in an incalculable way.

In a massive volte face the merger has been approved by IMPALA on the basis of the negotiation of a number of “remedies”, none of which were discussed with members before the approval was given and indeed have not been properly aired even now. In our client’s opinion, and our client believes in the opinion of most of the members of AIM, the agreement falls far short of what needed to be negotiated (and could have been negotiated) in order to compensate the independent music companies for the damage which will be done to their business if this merger goes ahead, which our client considers is likely to exceed US$100m, which in any event would have been the cost that WMG would have estimated a European Commission referral would have cost it. In the circumstances MOS would have expected IMPALA to have negotiated a package worth in excess of US$100m to compensate the European independent music industry for the devastating damage done by this approval.

Our client and indeed other members of AIM are highly suspicious as the way in which this whole matter has been handled and invites AIM to obtain from those who negotiated the “agreement” assurances that they have no personal interest in the agreement negotiated. If the merger goes ahead and if it proves to be the case that anyone involved in the negotiations benefits personally from the negotiated agreement without having first disclosed a personal interest, not only will AIM have further fallen down in its constitutional obligations but in addition our client will do all in its power to bring whatever proceedings are available to it to compensate the industry and punish the perpetrators.

We are sure that AIM (and IMPALA) will now see the necessity of this matter being aired openly and in the public domain. In order that this can happen MOS requires that AIM delivers up and procures that IMPALA delivers up the following categories of documents:

All minutes of meetings, submissions made, published and unpublished documents and any other documents relating to AIM and IMPALA’s professed views concerning mergers of major record companies.

All of AIM and IMPALA’s board resolutions in relation to the decision to negotiate with WMG and the decision to approve this proposed merger.

Minutes of all meetings between AIM/IMPALA and WMG relating to the proposed merger.

All correspondence between AIM/IMPALA and WMG relating to this proposed merger.

All minutes, notes, correspondence, passing between AIM and IMPALA in relation to this proposed merger.

We understand that AIM is being invited to ratify the IMPALA approval of the Warner/EMI merger. Our client requires AIM not to ratify this agreement and believes that to do so would totally betray the interests for which it was set up. Our client reserves its rights in this respect.

Furthermore it is clear that AIM, as a member of IMPALA, had both the right and indeed an obligation to seek to overturn the actions taken by IMPALA in approving this proposed merger. AIM must now take whatever steps it can to rectify the fundamentally misconceived actions of IMPALA.

In this respect MOS requires AIM to fall in behind the actions that MOS intends to take to challenge this proposed merger in every possible way, including taking the matter up with the European Commission itself.

Yours faithfully

Blake Lapthorn Tarlo Lyons

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