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Universal proposes radical divestments to smooth through EMI deal

By | Published on Monday 30 July 2012

Universal Music

Universal Music formally submitted its proposed concessions to the European Commission on Friday, proposals that it hopes will enable European regulators to approve its bid to buy the EMI record company.

As previously reported, although it originally insisted that its EMI bid could be approved in Europe without remedies, in recent weeks – after EC regulators provided a ‘statement of objections’ to the deal – Universal has been busy putting together a list of concessions to allay fears about the power of a combined Universal/EMI, mainly focused on the divestment of certain EMI divisions in some territories.

EC regulators had already indicated that a list of proposed sell-offs informally floated by Universal chiefs earlier this month were not sufficient, leading to a more wide-ranging set of proposals being submitted on Friday. And pretty radical they are too, from a UK perspective.

Confirming it had submitted its formal remedy proposals on Friday afternoon, Universal said in a statement: “Universal Music Group has submitted a package of remedies to the European Commission relating to its proposed acquisition of EMI Recorded Music. We believe the package fully addresses the Commission’s concerns and follows our constructive discussions with regulators, independent labels and competitors. We look forward to working further with the Commission and are confident of receiving clearance”.

Shortly after that statement was issued, current EMI boss Roger Faxon sent a memo to his staff outlining the divestments proposed in Universal’s latest submission. And the memo revealed that, if accepted by European regulators, the proposals could basically result in the end of EMI, the British major music company, in Britain, with substantial chunks of the firm’s UK operations up for sale.

In fact, pretty much only the non-classical side of Virgin Records (ironically, given that’s the division many expected Universal to sell) and some periphery smaller British labels would remain in Universal’s hands, which may well not be enough to justify the mega-major creating a standalone EMI division within its UK business, with remaining rosters and catalogues instead being absorbed by existing Universal units such as Polydor.

In Faxon’s words, the full list of proposed divestments is as follows:

1. In the UK, an entity composed of the rosters and catalogues of Parlophone (excluding the Beatles, both as a group and individually), Mute, Chrysalis (excluding the Robbie Williams catalogue) and Ensign would be sold. Included in that disposal would also be the Pink Floyd catalogue and the recently concluded new deal with David Guetta, along with his catalogue. Note that these disposals only relate to exploitation of this repertoire within the European Economic Area.

2. EMI Classics and Virgin Classics would also be divested in the EEA.

3. EMI’s share of the ‘Now’ brand and compilation business in the EEA would also be sold. However Universal would keep its share and participation in the ‘Now’ compilation venture.

4. The proposal also includes the divestment of a number of EMI’s operating businesses in Continental Europe. Those local operating companies are EMI France, EMI Belgium, EMI Czech Republic, EMI Poland, EMI Portugal, EMI Sweden and EMI Norway.

5. Universal is also proposing to divest some its own businesses, principal among which are Sanctuary, Co-Op, and UMG Greece plus several European jazz labels.

6. They would also commit to terminate or not to bid for a number of high-profile European licenses for major Anglo-American and domestic repertoire, namely Disney Records, Hollywood Records, Ministry of Sound, and Restos du Coeur in France.

Of course, if one party was to buy all the UK operations of EMI that Universal is proposing to sell, and then ran that as one standalone entity, then arguably the British major would live on over here as an independent label, even if not using the EMI name. Though only really an existing major music company or private equity would likely be able to afford such a deal and, of course, there had been hopes in the independent music community that existing indie label owners might be able to bid for different EMI units, a route that would lead to what is now EMI UK being totally sliced and diced.

As reported on Friday, the private equity backed music rights business of German media group Bertelsmann, BMG, has expressed an interest in buying Parlophone, a move that would boost the company’s sound recording interests – although BMG is in theory an integrated music rights business, the majority of its current catalogue consists of publishing rights in songs. Whether BMG could or would bid for all of EMI’s UK interests isn’t clear – if they did it would see the Chrysalis recordings catalogue reunited with the Chrysalis publishing business that BMG acquired in 2010.

Faxon admitted in his memo that the list of proposed divestments would pose an awful lot of questions for EMI staffers, especially in the company’s London office, but stressed that as of yet nothing was certain, as European regulators would have to feedback on the proposals. While the EC will start discussing the concessions with other interested stakeholders as soon as today, Faxon reckoned we are still looking at September at the earliest for a final ruling from European officials on the deal, adding that the sale of any assets would only then begin, and could take a while to complete. And, of course, the regulatory investigation in the US is also still ongoing.

Faxon concludes: “With a wind behind our backs we could close the sale and EMI could pass to UMG as early as the end of September. However I think it is more realistic to plan for a close at the end of October. In any event it is only at the close of the deal that any of the disposals could be put up for sale. Then of course there will be an extended period before that sale process results in a completed transaction. So as I say, we have some considerable time to get this sorted, and to make plans that take into account the needs of our staff and our artists”.

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