Board of directors to review position in the future.

EMI Group has dropped its ambitions to acquire and merge with Warner Music Group (WMG), following the recent decision by a European Union court to overturn the original approval for the Sony BMG joint venture.

EMI’s board of directors issued a statement this morning stating the U.K.-based music company will review its position in the future.

EMI’s U-turn comes after two attempts to buy WMG since May 1. It had offered to acquire WMG’s outstanding shares for $31 per share in cash (valuing Warner at $2.5 billion). But WMG rejected the offer.

Had WMG accepted EMI’s acquisition bids, the merged venture would have continued the consolidation trend that led to the merger of Sony Music Entertainment and BMG Music Entertainment in 2004.

But, on July 13, the European Court of First Instance in Luxembourg concluded that the European Commission’s approval of the Sony-BMG merger was flawed (Billboard July 22, 2006). The EC will now have to review its 2004 ruling.

EMI is reported to have shelved its plans for WMG until the end of the EU’s current regulatory uncertainty, which is expected to last for up to one year.

In its statement, EMI’s board “has decided not to pursue a combination with Warner Music for the time being. The Board will review this position in the light of future developments.”

It added: “When the board of EMI put forward its proposals to acquire Warner Music, it believed, and continues to believe, that there are good arguments for regulatory approval of a combination.”

Following EMI’s statement this morning, its shares on the London Stock Exchange fell to 255 pence a share this morning from 261 pence on the previous day’s closing.

On two occasions, WMG itself had made a counter offer for EMI, which the latter rejected.

In response to EMI’s decision, Warner came out with the following statement: “The July 13, 2006 ruling of the European Court of First Instance regarding Sony BMG has created uncertainty regarding a potential combination of Warner Music Group Corp. ("WMG") and EMI Group plc ("EMI").

“WMG will monitor the situation carefully, but until matters become clearer, for instance as a result of the re-review of Sony BMG by the European Commission or through an appeal to the European Court of Justice, WMG does not believe that it would be prudent to pursue a combination of WMG and EMI. Accordingly, WMG does not intend to make an offer for EMI at this time.”

Impala, the trade body representing Europe’s independent labels and a vociferous opponent to the majors’ consolidation plans, favored EMI’s decision to postpone its Warner takeover bid.

“They can’t ignore what has happened. The (court’s) decision has to be taken seriously,” commented Paris-based Patrick Zelnik, Impala’s president. “We’re not acting against the majors, we’re acting against the concentration (of the majors). The more players there are in the market, the better the diversity. The majors know we need a balanced market place.”