European regulators on Friday approved a reduced version of Universal Music's $1.9 billion takeover of EMI Music, allowing Universal to expand its dominance as the world's largest music company but significantly paring down its ambitions.
To win the approval of the European Commission, Universal agreed to divest itself of about a third of the assets of EMI, including most of Parlophone, its flagship label in Europe, along with a number of formerly independent labels and nine national subsidiaries of EMI across Europe. Universal will also sell a handful of its own assets, and it agreed to a set of market behavior controls that will govern how it handles contracts with digital music services. Â
The divestments include global rights to release the music by the artists on those labels, which means that EMI will no longer release records by some of its biggest acts, including Coldplay, Pink Floyd, Kylie Minogue and David Guetta. One consolation for Universal is that it will not have to sell recording rights for the Beatles or Robbie Williams, one of EMI's biggest acts in Britain.
The commission, the executive arm of the European Union, said in a statement that the asset sales allayed its concerns about the combined group's market power, and that it paid particular attention to the merger's effect on the digital music market.
“Competition in the music business is crucial to preserve choice, cultural diversity and innovation,†JoaquÃn Almunia, the E.U. competition commissioner, said in the statement. “In this investigation, we have paid close attention to digital innovation, which is changing the way that people listen to music. ‘The very significant commitments proposed by Universal will ensure that competition in the music industry is preserved and that European consumers continue to enjoy all its benefits.â€The total value of the assets to be disposed of was unclear. They are said to generate about $450 million in annual revenue in Europe, but the global rights could add considerably more.
The deal, which has already been cleared in Australia, Canada, Japan and New Zealand, is being reviewed in the United States by the Federal Trade Commission, with a decision expected in the coming days. The F.T.C. could demand further divestments from Universal, but that is considered unlikely.
The takeover will advance the corporate consolidation of the music industry that has been under way for more than a decade. But for Universal and its parent company, the French media and telecommunications conglomerate Vivendi, the EMI ruling is a painful victory.
The negotiations with European regulators went on for months and were tense because of serious concerns that the deal would have allowed Universal to worsen the licensing terms it offers to digital platforms such as Spotify and those operated by Apple that sell music to consumers.
“This has been one of the most difficult discussions,†said Mr. Almunia, who said one of the main challenges he faced was preservation of cultural diversity and innovation amid a further consolidation of the music industry.
The difficulty for Universal was rooted in the unusual structure of the deal, which was struck with Citigroup in November: in it, Universal agreed to pay Citi the full price of EMI, regardless of regulatory approval. (Its first payment - about $1.75 billion, or 90 percent - was made earlier this month, and the balance is due when the deal closes.)
Citi seized EMI in early 2011 after the label's previous owner, the firm Terra Firma, defaulted on a $5.4 billion loan. In a parallel deal reached last November, an investor group led by Sony paid $2.2 billion for EMI's music publishing assets. That deal closed in June.
Universal's agreement with Citi put pressure on its executives to preserve as much of EMI as possible, since the company would face losses if it were forced to sell assets for less than it paid. In addition, Universal had estimated $160 million a year in savings by merging the two companies, but not all of those savings would be realized from a diminished EMI.
In late July, Universal offered to sell about two-thirds of EMI's holdings in Europe, including much of Parlophone and top acts like the D.J. David Guetta. Also included were the former independent labels Chrysalis, Mute and Ensign; EMI Classics and Virgin Classics; EMI's share of the profitable pop compilation series “Now That's What I Call Music!â€; and EMI's subsidiary companies in Belgium, France, Sweden and other countries.
The divestment package that the European Commission agreed to will include those pieces with some additions, as well as global rights.
