Rivals see merger approval if EMI-Time Warner sells Virgin

EMI Group and Time Warner could appease European antitrust regulators opposed to their merger by agreeing to sell Virgin Records, a competitor says.

BRUSSELS, Belgium--EMI Group and Time Warner could appease European antitrust regulators opposed to their merger by agreeing to sell Virgin Records, a competitor said.

"The idea of Virgin becoming available might be the kind of radical solution the commission is looking for," said Philippe Kern, secretary general of the Independent Music Companies Association (IMPALA), a trade group representing independent music companies, which has lobbied against the merger.

Time Warner and EMI offered to sell a recording unit that has artists such as The Spice Girls and David Bowie to win commission approval for the combination, The Wall Street Journal reported today, citing people familiar with the matter. They also offered to sell Time Warner's Chappell Music catalogue, it said.

A person familiar with the negotiations, however, said the companies have not formally proposed to the European Commission the sale of Virgin Records or Chappell.

"We're not going to comment," Time Warner spokesman Edward Adler said. EMI spokeswoman Amanda Conroy declined to comment on the report.

The report came after sources said yesterday EU officials had decided to block the EMI-Time Warner transaction but clear America Online's $138 billion acquisition of Time Warner.

The commission has said it objects to the Time Warner-EMI combination because it could dominate the markets for recorded music, music publishing and delivery of songs over the Internet. In addition, the EU's executive body still has concerns regarding the AOL-Time Warner transaction, according to a European antitrust official familiar with the discussions.

In the United States, Federal Trade Commission staff lawyers are drafting a recommendation that the agency challenge the AOL-Time Warner combination and have delayed sending their proposal to the commissioners while the two sides engage in settlement talks, people familiar with the probe said.

FTC staff lawyers are also weighing whether to recommend that the agency challenge the Time Warner-EMI merger.

"Many investors will be very disappointed to see (today's) development," said Michael Gifford of Canada Life Asset Management in London. ''We thought this deal would go, albeit with a few small divestments--not major ones that effectively kill the deal. I can't see a situation where a forced sale of Virgin would be beneficial to EMI shareholders unless it was part of a bigger deal that would enhance value."

Virgin, one of EMI's two recorded music divisions, was acquired from founder Richard Branson in 1992 for $822 million and has artists including Lenny Kravitz and Janet Jackson.

Though the official EU deadline for concessions has passed, EMI and Time Warner can modify their proposals or offer new concessions that in one step answer all of the commission's concerns.

"The companies have made proposals recently," said Amelia Torres, a spokeswoman for European Competition Commissioner Mario Monti. "The companies are discussing them with the commission."

Torres said that no decision has been made on either the AOL-Time Warner or Time Warner-EMI transactions.

The commission's main problem with the link between Time Warner and EMI is that it You've got Time Warnerwhittles the industry down to only four major music companies from five, a problem that antitrust lawyers have said is difficult to solve.

The advisory committee of EU antitrust experts will meet again next week to examine any possible new concessions and further analyze the AOL-Time Warner transaction, two European antitrust officials have said.

By vetoing EMI-Time Warner, EU officials will eliminate many problems linked to the AOL-Time Warner merger, analysts have said. The commission must rule on the merger by Oct. 18.

In the United States, Federal Trade Commission staff lawyers are drafting a recommendation that the agency challenge the AOL-Time Warner combination and have delayed sending their proposal to the commissioners while the two sides engage in settlement talks, people familiar with the probe said.

FTC staff lawyers are also weighing whether to recommend that the agency challenge the Time Warner-EMI merger.

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