Media Decoder Blog: In EMI Bid, Universal Considers a Sale

To get European regulators to approve its $1.9 billion takeover of EMI, the Universal Music Group may do something once considered unthinkable: sell Parlophone Records, which releases the music of Coldplay and Radiohead and is the heart of EMI’s holdings in Europe.

According to a report in The Financial Times late Thursday that was corroborated by one person briefed on the talks, executives from BMG Rights Management, a music company backed by Bertelsmann and Kohlberg Kravis Roberts, have met with Universal over a possible sale of Parlophone. Representatives for Universal, EMI and BMG all declined to comment.

The fact that Parlophone is on the table is a sign of how troubled Universal’s talks with the European Commission have become. Universal, whose global market would swell to more than 40 percent if it absorbed EMI, entered the talks two weeks ago hoping it could gain the commission’s approval by offering to sell European rights to a relatively small number of songs. After its early offers were found inadequate, Universal looked to sell off independent labels that EMI had acquired over the years, like Virgin, Chrysalis and Mute. In its latest strategy, Universal is considering keeping those smaller labels and selling Parlophone.

In an interview this week with Dow Jones, Joaquín Almunia, the European competition commissioner, described the talks with Universal as being “very tough.” Last month, the commission sent Universal a nearly 200-page “statement of objections” that reportedly rejects many of Universal’s central arguments in favor of the merger.

While any Parlophone deal would most likely include the bulk of its extensive catalog, it would exclude EMI’s ultimate jewel, the Beatles, according to The Financial Times’s report and the person briefed on the talks, who was not authorized to speak publicly about it. Parlophone’s artists include stars like Kylie Minogue, Blur, Gorillaz and the Verve. The label also handles the European releases for other acts signed to EMI’s American branches, like the Beastie Boys, but it is unlikely that a sale would include rights to those artists’ music.

Peeling off Parlophone could have an adverse effect on the value of Universal’s overall deal for EMI. Universal assumed all regulatory risk in the transaction, agreeing to pay about 90 percent of the full sale price by September, whether the deal is approved by regulators or not. If Universal is forced to sell big pieces of EMI for less than it paid, and also loses some of the $157 million it expected in annual savings, the deal could end up far more expensive for Universal.

Universal has until Wednesday to make its formal submission of remedies to the European Commission, although it may do so earlier. Its proposal will then go through “market testing” with competitors, and the commission will have until Sept. 27 to make a final ruling.

In the United States, the Federal Trade Commission is investigating the deal.

Article source: http://mediadecoder.blogs.nytimes.com/2012/07/26/in-bid-for-emi-universal-music-group-considers-sale-of-parlophone-records/?partner=rss&emc=rss