Time Warner-EMI Deal May Fall Apart

Time Warner’s proposed $20-billion merger with British giant EMI Group is likely to unravel today with European regulators expected to nix the deal in an eleventh-hour meeting in Brussels.

Sources said late Wednesday the European Commission is preparing to block the merger despite a series of desperate last-ditch concessions by the two companies, including dumping EMI’s Virgin label and a huge chunk of the Warner/Chappell music publishing company.

Executives at Time Warner and EMI could not be reached for comment.

If European antitrust experts reject the merger and leave EMI standing at the altar again, analysts say the troubled music company will be hard-pressed to recover or find another suitor in the future. A rejection of the deal would also dash Time Warner’s hopes to consolidate EMI’s holdings and quickly reestablish itself as a formidable player in the global music market.

The European Commission has previously signaled that Warner Music’s venture with EMI, whose roster includes the Beatles, the Spice Girls and Garth Brooks, could harm fair competition in sales of recorded music, music publication and the digital delivery of music.

When a special committee of competition experts met last week, it backed the European Commission’s decision to veto the proposed $20-billion combination, which would reduce the number of major music companies from five to four.

Competitors such as Seagram, Sony, Bertelsmann and Disney have heavily lobbied the EC to reject the Time Warner-EMI deal.

EMI said last week it had sent EU antitrust officials new proposals “to address the issues raised by the commission [and] intended to increase competition across the European music industry.”

European antitrust experts called a special session for today to consider the new concessions made by Warner Music and EMI Group to gain approval for their joint venture, but sources said Wednesday that the panel planned to reject the deal. A final decision by the entire 20-member European Commission is due Oct. 18.

The experts, however, are prepared to approved America Online’s acquisition of Warner Music parent Time Warner. If the EMI merger does collapse, it would have a dramatic impact on Time Warner’s music digital delivery plans for the Internet.

Both the Time Warner and EMI music groups have struggled in recent years and now rank fourth and fifth in sales of music in the U.S., the world’s biggest market.

EMI, the crown jewel of the British media business, has also experienced difficulty building its business in the U.S. and has gone through a series of management shake-ups. The company has been the subject of on-and-off takeover speculation for the past four years with a long list of potential suitors, including Seagram, News Corp., Disney and Bertelsmann. Rejection of the Time Warner deal--on grounds that it would reduce the number of competitors from five to four--appeared to preclude EMI from being gobbled up by another entertainment company.

Once the dominant and most respected operation in the record business, Time Warner has seen its music profit and market share dwindle significantly in recent years. Warner’s decline followed a decade of turmoil that gutted the management team and shattered morale.

The proposed merger was the brainchild of recently installed Warner Music Group Chairman Roger Ames, who had committed to run the combined operation as a partnership with his longtime friend Ken Berry, the current head of EMI’s music division. It is unclear what kind of backup plan Ames may have to help put Time Warner back on the map.