While things have been a bit quiet recently around the Universal Music Group's proposed acquisition of EMI, expect them to heat up toward the end of this week and especially after the Labor Day weekend.
Universal/EMI: Deal Looks Likely to Be Approved, But at What Cost to UMG?
Whether or not UMG will win approval should be decided by the end of September, according to sources.
As it stands, the only recent activity (apart from the deal being approved in Canada) occurred when Robert W. Goodlatte, R-Va., and Melvin L. Watt, respectively the chairman and ranking minority member of the Congressional Judiciary Committee's Subcommittee on Intellectual Property, Competition and the Internet, sent a letter to the heads of the two majors involved in the deal -- UMG chairman/CEO Lucian Grainge and EMI Group CEO Roger Faxon -- and to Warner Music Group chairman Stephen Cooper, asking five questions about the merger, as first reported by the New York Times.
The congressmen said they were moved to send the letter due to the competing viewpoints that have emerged over the proposed deal. On the one hand, some say that the deal would give UMG digital pricing power that the record companies once exercised over CDs, albums and cassettes; and it could potentially impact digital innovation and distribution. But proponents of the merger counter that the record labels have lost much of their traditional power due to the emergence of digital distribution and due to piracy; and that UMG's ownership of EMI would invigorate the label and result in significant investments and yield synergies to benefit the future of the music industry.
The letters reportedly asked whether the music industry has unique characteristics that may increase or reduce concerns about the proposed deal. The other questions asked were: How would competition be impacted?; What benefits or harms are there for the consumer?; What role does piracy play as a constraint on the ability of record labels to raise prices or otherwise act anti-competitively?; Do powerful players like Apple place constraint on the ability of UMG/EMI to raise prices to consumers?
The letter was sent on Aug. 21 and they are asking for a response within 14 days, which would be Sept. 4. Even though the House of Representatives sent the letters to the heads of the three majors late in the process -- or two months after the Senate held a hearing on the merger -- sources familiar with the situation say that the letter is really more along the lines of the sub-committee going through the motions as part of its general oversight over these issues.
When UMG and the EU were last involved in conversations, it sounded like EU wanted UMG to sell off its Parlophone catalog on a global basis. But UMG may have been trying to substitute another catalog for Parlophone, since the ante was upped with the inclusion of global rights. Those conversations are expected to heat up again in the middle of next week.
Meanwhile, the Sept. 9 deadline for UMG to pay Citigroup $1.9 billion to acquire EMI is looming large, especially since the deadline for the EU to return a decision has been extended to Sept. 27. It is expected that the EU will make its decision before then and use the remaining time to write up its decision. But the odds of it making its decision before Sept. 9 are slimming down and it is beginning to look like UMG will have to tender payment for EMI before it knows whether or not it will gain approval for the acquisition.
Meanwhile, back in the U.S., the FTC review of the UMG/EMI deal is a bit more fluid. Initially, there was a 30-day deadline in which the FTC had to decide whether it wanted to take a deeper look at a deal. In the case of the Sony Corp. of America-led consortium acquisition of EMI Music Publishing, the FTC let the first 30-day deadline expire (which is called an early determination).
In the case of the UMG/EMI deal, the FTC decided to take a deeper look, and theoretically it has 30 days after it receives all the data it requested. But the problem in determining a timeline is that the clock doesn't stop ticking until it has been certified that all the documentation that was being sought was delivered to the FTC. While that has occurred, it is unclear exactly when is occurred. Besides, at any given moment, the FTC can ask for more time to make its decision and the amount of time can vary at its own discretion.
Sources suggest that the FTC is letting the EU do all the heavy lifting on the UMG/EMI deal. With the EU now asking for a global divestment package, it certainly saves the FTC the energy from having to move in that direction. Moreover, informed sources say that an agreement exists between the FTC and the EU to cooperate and communicate with each other on merger deals. While some sources insist that those conversations have been happening all along, one source says that is unaccurate - and that behind-the-scenes conversations are taking place between the FTC and EU.
In any event, time will tell what the EU decides -- and the way things are going, it appears that all the FTC will have to do is give its blessing the deal that is ultimately hammered out between the EU and UMG. Billboard.biz will be following the situation every step of the way. Stay tuned ...