EU Expected to Clear AOL-Time Warner

European regulators plan to clear--with conditions--America Online Inc.’s proposed $135-billion takeover of Time Warner Inc., but block the $20-billion joint venture between Warner Music and EMI Group, a European Union source said Thursday.

Asked whether the commission was planning to clear AOL-Time Warner and block the other deal, the source said, “Yes, that is the situation at the moment, although the commission has not yet taken a formal decision.”

“If it sorts out the EMI-Warner Music problems, either by blocking the deal or resolving the issues of market dominance, it’s hard to imagine the commission having any problems with AOL-Time Warner,” the source said.

“Discussions are still going on with [EMI and Time Warner], and they could still produce further commitments,” said the source, “but they’d have to be pretty clear-cut, and that could be difficult.”

In principle, the deadline has already passed for the companies to make concessions to address the commission’s concerns that the EMI-Warner deal could stifle fair competition.

However, late offers are possible as long as they clearly solve the remaining competition problems without the need for exhaustive testing on the market.

The source confirmed that competition experts from the 15-nation EU, meeting in the bloc’s closed-door advisory committee on mergers Wednesday, had backed the commission’s plans to clear AOL-Time Warner and block EMI-Warner.

But he added that contingency plans were being drawn up for a special meeting of the committee on Monday to reconsider the EMI-Warner venture if the companies come up with new proposals rapidly.

Ed Adler, a spokesman for Time Warner, said, “Our discussions with the EU are proceeding well and nearing the end” on the AOL deal. “We are confident they will conclude successfully.”

He declined to comment on the status of the EMI transaction.

Informed sources said the companies were still holding talks with the commission’s merger task force.

The commission must make its final ruling in the AOL-Time Warner case by Oct. 24 and has until Oct. 18 to reach a decision on EMI-Warner.

On the New York Stock Exchange Thursday, Time Warner shares rose 85 cents to close at $79.85 and AOL closed at $53.59, up 9 cents.

The commission said it was too early to draw any conclusions about either deal.

“It’s speculation to say what we might be doing about either of those deals,” spokeswoman Amelia Torres said. EU Competition “Commissioner [Mario] Monti was not in Brussels after the advisory committee and has not yet been informed of its results. It’s for him to decide how to proceed.”

Two weeks ago, Monti’s staff drafted decisions to block both deals, but that was before the companies offered a series of concessions to address competition problems.

EMI and Warner Music offered to sell a number of assets and made several behavioral pledges, including the promise not to withdraw from groups that gather royalties on behalf of artists.

To win the commission’s blessing for the Time Warner merger, AOL offered to end its joint venture in Europe with Bertelsmann and alter its arrangement with Vivendi in France.

Time Warner promised not to discriminate against non-AOL-affiliated Internet service providers, and AOL agreed not to force content providers wanting to sign a deal with AOL in the United States to make a similar commitment in Europe.