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After doing the math and determining it would cost $640 million to settle the liability, Universal said no thanks.

TWO GUY$ EYE EMI AS UMG PASSES

Pesky Pension Issue Behind Universal’s Change of Heart, Leaving Only Blavatnik and Perelman in Auction for Records
Len Blavatnik has moved a step closer to snagging EMI Music (the British company’s recorded-music operation) and combining it with Warner Music, as UMG and parent company Vivendi opt to walk away from the bidding process, the Wall Street Journal reports this morning, citing people familiar with the matter. The Russian billionaire will pay between $1 billion and $1.5 billion for records—assuming Citigroup doesn’t (A) opt to sell to fellow billionaire Ron Perelman's MacAndrews & Forbes Holdings, or (B) decide it's not the right time to sell. Additionally, there’s the possibility that the Universal pullout is a negotiating ploy.

Citi and Vivendi/UMG reached an impasse in their negotiations earlier this week, according to the source. The main stumbling block involves the liability associated with 22k EMI pensioners. After doing the math and determining it would cost $640 million to settle the liability, Universal said no thanks. But Citi refuses to be saddled with the bill, either, meaning Blavatnik (or Perelman) will be required to cover it as part of the deal.

At this point, it remains unclear whether an attempt to combine the bottom half off the Big Four would pass antitrust muster. Even though Warner would likely argue that new forms of competition justify the elimination of one of the four major music groups, the Obama administration has recently taken a hard line on mergers and could still stand in the way. And then, of course, there’s the European Commission, which stood in the way of previous attempts to merge WMG and EMI, as Edgar Bronfman Jr. knows full well.

But even if the two sides could reach a compromise on the pension issue, there are still other issues they would need to get past, such as Citi's insistence that buyers take the risk that antitrust regulators nix the deal, as our own I.B. Bad pointed out several weeks ago.

Warner, meanwhile, is believed to have moved closer to seizing its long-sought prize nearly two weeks ago, when it secured financing for a bid from UBS, Credit Suisse Group, Nomura Holdings and Macquarie Group, people familiar with the matter said. Citigroup had explored the possibility of selling all of EMI to one bidder, with Roger Faxon pushing hard for that outcome, but the bank appears to have settled on a two-part sale to maximize proceeds.

As for EMI Music Publishing, which is expected to sell for around $2 billion, BMG Rights Management and Sony/ATV have been waiting for an answer since submitting their bids three weeks ago, while Citi has focused on the recorded-music sale, a source said.
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