European Commission Approves Universal's Takeover of EMI

The European Commission, executive arm of the European Union, has approved a pared down takeover of EMI Music by Universal Music.

Under the Commission’s terms, Universal has agreed to divest roughly a third of EMI’s assets including EMI Recording Limited, which holds Parlophone, home to Coldplay, David Guetta, Pink Floyd, David Bowie, Tina Turner, and Duran Duran. Independent entities along with nine national subsidiaries will also be released including Mute; Chrysalis; EMI France; and label licensing business Coop. In addition, Universal committed to selling EMI’s 50% stake in the popular Now! That’s What I Call Music compilations. The label will reportedly retain recording rights for the Beatles. The Hollywood Reporter values the assets on the cutting block to be worth €350 million ($457 million).

Universal will also concede assets of its own, in addition to excluding Most Favored Nation (MFN) clauses in its favor in any new or renegotiated contract with digital customers in the EEA for ten years. MFN clauses oblige digital customers to extend any favorable term granted to Universal’s competitors to Universal.

“Competition in the music business is crucial to preserve choice, cultural diversity and innovation,” said Commission Vice-President in charge of competition policy Joaquín Almunia. ”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.”

The $1.9 billion deal, which has already been cleared in Australia, Canada, Japan and New Zealand, brings together two of the four global major record companies, leaving behind three majors. Currently, the Federal Trade Commission is reviewing the proposal in the United States. A decision is expected in the coming days. According to the New York Times, the F.T.C. could demand further divestitures from Universal, but that is considered unlikely.

Goldman Sachs and Bank of America Merrill Lynch have been hired to take the trimmed assets to market for potential bidders including Sony, Warner, BMG, BMG Rights, and MacAndrews & Forbes.

Citigroup took control of EMI in early 2011 after the label’s previous owner, Terra Firma, defaulted on a $5.4 billion loan. For purchase, Universal agreed to pay Citi the full price of EMI, regardless of regulatory approval. Ninety percent was paid earlier this month, with the balance due at the deal’s close.

In June, Sony closed on the $2.2 billion purchase of EMI Music Publishing Assets.

[Update:] Shortly after this European approval today (9/21), the F.T.C. in the United States approved the acquisition.