EMI, Bertelsmann Give Up on Plans to Merge

EMI Group and Bertelsmann have officially pulled the plug on their plan to merge into the world’s largest record company.

The British music giant and German media conglomerate officially nixed the proposal early Tuesday, announcing that they were throwing in the towel after five months of stiff opposition from antitrust authorities in Europe. The European Commission rejected the deal on the grounds that it would damage consumers by reducing the number of global record conglomerates from five to four.

Bertelsmann Chairman Thomas Middelhoff was unavailable for comment. EMI Group Chairman Eric Nicoli said the two companies had proposed a wide variety of merger structures since November in an attempt to alleviate the antitrust concerns of the European Commission but to no avail.

“After exhaustive analysis and discussion, we have been unable to find a deal with Bertelsmann that works both for shareholders and for the regulators,” Nicoli said in a phone interview from EMI’s London headquarters. “In the present regulatory environment, combining any two music majors is extremely difficult if not impossible. For the foreseeable future, I believe we are stuck with the architecture of the music business as it is.”

Under the existing architecture, EMI ranks a distant third in global music sales behind Universal Music Group, which is owned by French utilities firm Vivendi Universal and Sony Corp. (Universal became the industry leader by purchasing PolyGram in a 1998 deal that sailed past antitrust authorities in Europe and the U.S.) AOL Time Warner trails EMI in fourth place, with Bertelsmann at the bottom of the heap.

Last year, Bertelsmann’s Middelhoff vowed to catapult his company into first place by merging with EMI. On Tuesday, Bertelsmann music chief Rolf Schmidt-Holtz attempted to put a new spin on that unfulfilled pledge.

“[Bertelsmann] remains squarely focused on creating and delivering diverse and high-quality music that is second to none,” Schmidt-Holtz said. “While the benefits of becoming the world’s largest music company are clear, a merger is not essential for [Bertelsmann’s] continued success.”