Following approval in Japan, New Zealand, Canada and Australia, the European Commission has approved, after a lengthy negotiation process, Universal’s purcahse of EMI. With significant, worldwide strings attached. The U.S. is expected to vote on the deal today. (Pictured above is Universal head Lucian Grainge on the left, and EMI chief Roger Faxon.)
As the Commission’s press release explains (emphases ours):
To remove the Commission’s concerns, Universal committed to divest significant assets.
These divestments include EMI Recording Limited, which holds the iconic Parlophone label (home to artists such as Coldplay, David Guetta, Lilly Allen, Tinie Tempah, Blur, Gorillaz, Kylie Minogue, Pink Floyd, Cliff Richard, David Bowie, Tina Turner and Duran Duran). The divestments also encompass EMI France (which holds the David Guetta catalogue), EMI‘s classical music labels, Mute (home to The Ramones and Jethro Tull), Chrysalis (home to Depeche Mode, Moby and Nick Cave & The Bad Seeds), various other labels and a large number of local EMI entities. The divestment package also includes Coop, a label licensing business selling artists such as Mumford and Sons, Garbage and Two Door Cinema Club.
In addition, Universal committed to selling EMI‘s 50% stake in the popular Now! That’s What I Call Music compilation JV and to continue licensing its repertoire for that compilation in the next ten years.
Universal finally committed not to include Most Favoured Nation (’‘MFN’’) clauses in its favour in any new or renegotiated contract with digital customers in the EEA for ten years. MFN clauses oblige digital customers to extend any favourable term granted to Universal’s competitors to Universal. This commitment will allow Universal’s competitors to negotiate more freely with digital customers and further levels the playing field between these competitors and Universal.
The rights to be divested are worldwide and cover both digital and physical music. This will ensure a viable and competitive exploitation of the divested artists and catalogue by the purchaser of the assets.
Even with such large concessions, opponents of the deal complained that it would allow Universal to grow even bigger. “It’s good to see that the commission has seen this deal as such a threat to the market that it has demanded and received truly swinging commitments on divestments,” said Martin Mills, chairman of the Beggars Group, an independent company whose acts include Adele and Vampire Weekend. “However, that should not conceal that fact that Universal’s arrogance has paid off for them, that they have destroyed a significant competitor, and that even with these divestments their ability to dominate and control the market has reached even more unacceptable levels.”
The damage to Universal and Vivendi could be minimized if Universal can get good prices for the divested assets. Several parties are said to be interested, including BMG Rights Management, a joint venture between Bertelsmann and Kohlberg Kravis Roberts. Daniel Miller, who founded the Mute label in 1978 and sold it to EMI in 2002, has also expressed interest in buying it back.
EMI‘s Chief Executive Roger Faxon wrote his staff a letter (full text at The Guardian):
It has been almost eleven months since Citi reached an agreement to sell EMI Music to Universal Music Group. From that moment to this, even as we worked tirelessly to help UMG reach the finish line, we have never waivered in our dedication to help our artists achieve their dreams.
That dedication has continued to fuel our success, and there is no greater evidence of that than our August results, which I have to say were simply great. And as of this moment it looks like we are set to do even better in September and bring the half year in well above budget!
While that is as good a reason to write you as any that I could think of, the actual reason I am doing so is that today we reached a milestone in our journey to new ownership. After many months of consideration, the European Commission has finally given its approval to the sale. (The European Commission’s press release announcing their decision and their Q&A is attached for you to read).
With that approval and the imminent clearance in America, as well as those already received from other regulators around the world, UMG has cleared the final hurdle in its quest to become the owner of EMI Music.
So, we are now ready to close this chapter in the history of EMI. It now seems all but certain that in a week’s time, on September 28th, UMG will finally take control of this great and historic business.
However as all of you know, to secure the approval of the transaction by the European Commission, UMG has committed to sell a substantial portion of our European business along with several of their own businesses. As a result, while in the coming days many of you will move on to become a part of UMG, others who are a part of the businesses that are to be sold on will have to wait a while longer to know who will be the long-term owner of their businesses.
“It’s good to see that the Commission has seen this deal as such a threat to the market that it has demanded and received truly swinging commitments on divestments.
“However, that should not conceal that fact that Universal’s arrogance has paid off for them, that they have destroyed a significant competitor, and that even with these divestments their ability to dominate and control the market has reached even more unacceptable levels.
CMU has a useful timeline up of their coverage around the acquisition.