Universal Wins EU Approval to Buy EMI After Selling Labels

Universal Wins EU Approval to Buy EMI’s Recorded Music Business
Universal, which agreed to buy EMI from Citigroup Inc. last year for 1.2 billion pounds, will sell EMI Recording Ltd., which owns Parlophone. Photographer: Chris Ratcliffe/Bloomberg

Vivendi SA’s Universal Music Group won European Union approval to take over the recorded-music business of EMI Group, after pledging to sell about a third of EMI assets to cut the combined group’s market share.

Among divestments, Universal Music will sell the Parlophone music label, home to Coldplay and David Bowie, as well as Black Sabbath’s record company Sanctuary, and the Chrysalis label, home to Depeche Mode, the European Commission said in a statement today. Universal will also avoid favorable terms for any new digital music deals in Europe for 10 years.

EU approval comes almost a year after Universal Music agreed to buy London-based EMI’s recorded unit from Citigroup Inc. for 1.2 billion pounds ($1.95 billion), effectively ending more than 80 years of business at EMI, most famously known as the record label of The Beatles. The takeover cuts the number of major record companies to three, as the industry faces challenges including illegal downloading and fewer CD sales.

“The very significant commitments proposed by Universal will ensure that competition in the music industry is preserved,” EU Competition Commissioner Joaquin Almunia said in the statement.

Assets to be sold will reduce EMI revenue by 30 percent and that of the combined group by about 10 percent, a person familiar with the matter said today. The deal creates 100 million pounds in savings, said the person who asked not to be identified because the matter is private.

Potential Bidders

Universal Music offered concessions because of EU concerns that the transaction could give Universal “excessive market power” and enable it to impose higher prices and more onerous licensing terms on digital music providers. The value of divestments may be as much as 350 million euros ($456 million), and potential buyers such as BMG Rights and Warner Music Group have already lined up, a person familiar with the matter said this month.

Universal’s market share in Europe is now below 40 percent, Almunia said at a press conference in Brussels today. He added that “two-thirds of the divestiture should go to one buyer” smaller than Universal.

Pink Floyd, Beatles

Under the concessions package, Universal Music would also forfeit Pink Floyd and retain rights to The Beatles. EMI France, EMI’s classical music labels, Mute, and EMI’s 50 percent-stake in the Now! music compilations are also included in the divestments which cover worldwide rights for digital and physical music.

Universal will drop so-called most-favored nation clauses in any new or renegotiated contract that require digital customers to extend to Universal preferential terms given to its rivals.

“It was looking difficult at one stage, but we now have two-thirds of EMI on a global basis and we’ll grow the company having gotten over this difficult negotiation,” Vivendi spokesman Simon Gillham said by phone today.

While Universal Music will sell more assets than initially thought would be required, it now has 31 percent of market share worldwide, Gillham said. Vivendi has already paid 1 billion pounds of the 1.2 billion-pound price tag for EMI, he said.

The U.S. Federal Trade Commission is next to decide on the takeover.

Asset Sales

In Europe, Universal must sell the assets to record companies or businesses with a proven track record in the music industry, such as music publishers, the Brussels-based agency said. Regulators want the sales to allow the emergence of a strong competitor to Universal, the EU said. Universal cannot reacquire the assets or re-sign any artists for 10 years.

Impala, a group of independent record labels, said today the proposed divestments don’t go far enough to curb Universal’s improved market position.

Citigroup sold EMI’s publishing division in a separate transaction for $2.2 billion to a Sony Corp.-led group. That purchase was cleared by EU regulators in June. Citigroup seized EMI from Guy Hands’s private equity firm, Terra Firma Partners Limited, in February 2011 after it failed to meet loan terms. Hands bought EMI in 2007.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE