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AOL-Time Warner merger runs into EU challenge

Reports that the European Commission may be close to blocking the companies' proposed merger do not represent the agency's official position on the deal.

Reports that the European Commission may be close to blocking the proposed merger of America Online and Time Warner do not represent the agency's official position on the deal, a commission spokesman said today.

"This is pure speculation at this stage," said Michael Tscherny, a spokesman for European Union Competition Commissioner Mario Monti. "We haven't seen any (recommendation report) draft, though it's possible that a first draft is out there somewhere. But it's far too early" to reach a final conclusion because "we haven't even reached the deadline for concessions yet."

That statement was echoed by some analysts and lobbyists who are following the $118 billion merger, which would create the world's largest media company. They said the preliminary report was not a sign that European approval is in serious trouble, but instead an attempt to wrest more concessions from AOL and Time Warner.

"I think it's posturing on the part of the (European Union) to try to get concessions from AOL Time Warner," said Youssef Squali, an equity analyst at ING Barings. "I'm still confident it will go through."

The reactions came in response to a report by The Wall Street Journal's online edition, citing unnamed sources that said the commission had begun circulating a "preliminary recommendation" to block AOL's proposed merger with Time Warner.

The companies have already agreed to several conditions but must present new concessions by Sept. 24 to see the deal through. The commission's final decision is expected by Oct. 24.

Some of the key negotiation points include the combined company's relationship with European media powerhouse Bertelsmann and Time Warner's parallel planned acquisition of record label EMI Recorded Music. Other concessions that could be put on the table could involve AOL's instant messaging technology, an issue that has gained belated attention among U.S. regulators reviewing the deal.

The commission has not been encouraging in its statements about the deal. The commission has said that the key competitive issue in the acquisition is the vertical integration of AOL's online services with Time Warner's content.

The merger "would create a dominant position in the markets for online music delivery, music software, Internet dial-up access, broadband Internet access and integrated broadband content, as a result of which competition would be significantly impeded," the commission said when it launched an in-depth investigation of the merger in June.

A Time Warner spokesman said the company has not yet seen today's reported preliminary recommendation but added that merger is not in jeopardy.

"This is a normal part of the process with the EU," said Time Warner spokesman Ed Adler. "We You've got 
Time Warner are totally comfortable with where we are at this stage of the negotiations and have made excellent progress and are confident that the talks will conclude successfully. As we have said, we are on track to close in the fall."

The acquisition hinges on the approval of the commission, which represents the 15 member countries of the European Union; the U.S. Federal Trade Commission; and the U.S. Federal Communications Commission.

Reuters contributed to this report.