Bloomberg News

Warner Said to Continue EMI Chase as Vivendi Deal Faces Scrutiny

February 24, 2012

Feb. 23 (Bloomberg) -- Len Blavatnik, the billionaire owner of Warner Music Group, hasn’t given up pursuing EMI Group’s recorded music unit as its sale to Vivendi SA is scrutinized by regulators, three people with knowledge of the matter said.

Warner Music will seek to buy EMI’s recorded-music business outright if its lobbying offensive succeeds in convincing the European Commission and the Federal Trade Commission in the U.S. to block the 1.2 billion-pound ($1.9 billion) deal, said the people, who declined to be named as the plans are private. Warner would also be interested in buying major parts of EMI if the sale to Vivendi’s Universal Music Group is approved with the requirement to sell some assets, said the people.

EMI’s recorded music assets would give Blavatnik, who acquired Warner Music in May 2011 for about $3.3 billion, rights to songs of artists such as Coldplay, Katy Perry and the Beatles. Warner Music has held discussions with Impala, a group that represents independent musicians and also opposes the combination of Universal Music and EMI, two of the people said.

Impala won a 2006 court ruling overturning the European Union’s approval of Sony Corp. and Bertelsmann AG’s agreement to form the Sony BMG record label. Impala has said it expects an “outright rejection” of Universal’s EMI deal.

Universal Music hasn’t been given any indication that either regulatory group will reject the deal, a person close to the process said.

Vivendi spokesman Simon Gillham said Vivendi and Universal “continue to follow the regulatory course and are confident that their arguments will be heard.” Warner spokesman Will Tanous declined to comment on the regulatory process.

Lobbying Offensive

Blavatnik has said that the acquisition of EMI would allow Universal Music to squash competition while Vivendi Chief Executive Officer Jean-Bernard Levy has argued the deal would ultimately be good for the industry and musicians. Universal’s holdings account for 27 percent of the recorded music market, while EMI represents 9.7 percent, according to Sanford C. Bernstein analyst Claudio Aspesi. Warner Music accounts for 12 percent.

Blavatnik might try to force as many regulatory concessions as possible, pushing Vivendi to abandon the acquisition even without a formal rejection, two of the people said.

Universal Music agreed to buy EMI’s recorded music operations, which develop artists and profit from recorded songs, in November. Warner Music made an offer of about $1.5 billion to $1.6 billion, two people with knowledge of the process said at the time. The other half of EMI, the publishing business, which profits from musical scores and lyrics, was sold to an investor group led by Sony for $2.2 billion.

The European Commission has set an initial deadline of March 23 to rule on the EMI deal. Universal Music said Feb. 20 it will work closely with the commission and is “confident of securing clearance.”

Abbey Road, Beatles

The breakup of EMI, owner of Abbey Road Studios, the rights to the Beatles albums and songs written by the late Amy Winehouse, ended a nine-month struggle over the future of the 114-year-old music company. Citigroup Inc. last year seized London-based EMI from investor Guy Hands, who lost almost a third of his firm’s 5.4 billion-euro buyout fund on the company.

Blavatnik acquired Warner Music in May 2011 for about $3.3 billion, including $1.99 billion in debt. Warner had worked on a possible offer for EMI before it was seized by Citigroup, a person familiar with the plan said then.

The rise of legitimate music-streaming services such as Spotify and Pandora are reviving sales in the music industry, which has struggled to offset declining album sales. Digital sales now account for more than half of revenues in the U.S. industry.

--With assistance from Jacqueline Simmons in London and Jim Brunsden and Aoife White in Brussels. Editors: Simon Thiel, Kenneth Wong.

To contact the reporters on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net; To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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