News > Deals
EMI, Time scrap music tie
October 5, 2000: 7:10 p.m. ET

Regulatory hurdles derail $20B music venture, but AOL merger gains speed
By Staff Writers Tara Duffy and Tom Johnson
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LONDON (CNNfn) - EMI Group PLC and Time Warner Inc. scrapped their $20 billion music joint venture Thursday under heavy protests from European regulators, but pledged to try and resurrect the deal later in a more agreeable form.

The European Commission said Thursday that last-minute, informal concessions proposed by the companies were too late to be considered and were not enough to ease their concerns. But a spokeswoman for the regulatory body said that the commission would consider a new, modified proposal if the companies submitted one.

graphic CNNfn's Tom Bogdanowicz reports on the failed joint venture between EMI and Time Warner.
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Setting the venture aside sparked renewed hope that America Online's (AOL: Research, Estimates) $130 billion purchase of Time Warner (TWX: Research, Estimates), the parent company of CNNfn, now stands a better chance of gaining European Commission approval.

Regulators in both the United States and Europe continue to deliberate about approving that deal, but Amelia Torres, spokeswoman for the Commission, told CNNfn that its concerns with the AOL-Time deal "have always been music." When pressed on what the abandonment of the EMI-Warner venture would mean for the larger deal, she added: "Draw your own conclusions."

graphicThose comments helped boost both Time Warner's and AOL's stock for the second straight session on the New York Stock Exchange. After gaining 6 percent Wednesday, AOL shares rose another 5 percent, or $2.85, Thursday to close at $61.50. Time Warner also surged $5.24, or 6.1 percent, to $91.24, building on its 5.5 percent gain Wednesday.

"Both companies seem fairly confident that they can get it done on schedule by the end of fall," said James Goss, an analyst with Barrington Research Associates.

EMI (EMI) shares, meanwhile, tumbled 3.8 percent Thursday on the London Stock Exchange.

The turnaround in AOL and Time Warner's stock prices was an encouraging sign for the companies, analysts said, particularly given both have been mired in a slump since the blockbuster merger was first announced in January. At one point last month, AOL shares fell as low at $51.75, shaving more than $52 billion off a merger first valued at $182 billion.

Scott Davis, a media analyst with First Union Securities, said investors were encouraged by the decision to set EMI aside. Despite word that U.S. regulators may impose several conditions on the merger, mandating such things as open access to Time Warner's expansive cable lines, none of the proposed conditions are considered a significant threat to the merger's overall value.

The European Commission, however, was viewed as a significant threat to block the deal outright.

"I don't think investors are getting ahead of themselves here; I think they are catching up," Davis said. "I don't find any of the [conditions] that have been discussed so far as a deal-breaker."

Youssef Squali, a technology analyst for ING Barings agreed, noting even if AOL was forced to open its instant messaging platform and sell its stake in satellite company Hughes Electronics Corp., the impact would be minimal. He noted AOL's instant messaging services contributed less than $100 million in revenue last year.

The European Commission is scheduled to make a decision on the AOL-Time Warner deal by Oct. 24. The U.S. Federal Communications Commission and the U.S. Federal Trade Commission are also expected to make their rulings the same week.

While there appear to be few hurdles left for the companies to clear in Europe, U.S. regulators are pressing for concessions related to open access and guarantees the new entity will carry third-party content.

EMI on the back burner

The European Commission, the executive arm of the European Union, had consistently raised objections to the EMI/Time Warner union because it would have reduced the number of global music companies from five to four. It also voiced fears the new entity would come to dominate the online delivery of music.

"The withdrawal of our application allows additional time to reassess regulators' concerns and to pursue solutions simultaneously in Europe and the U.S," EMI Chairman Eric Nicoli said in a statement.

"We will continue to explore ways to structure a combination that will make sense for the two companies and be acceptable to the commission," Time Warner President Richard Parsons added.

Click here to read an analysis about the future of EMI

But Time Warner spokesman Scott Miller declined to comment on whether the company intended to shelve negotiations with EMI until after the AOL merger is completed or would press for a resolution now.

Still, analysts said they expect the venture to reemerge at some point, possibly soon.

EMI and Time Warner had made a slew of concessions to try to persuade regulators to accept the deal. The companies' most recent, 11th-hour offer reportedly included the proposal that they sell EMI's British-based record label Virgin Records and other music publishing businesses.

"The practice is not to accept remedies submitted after the deadline unless they resolve all concerns in a clear and obvious way and do not require a market evaluation," the EU's Torres told the news conference.

"It's very dangerous to leave your undertakings until the last minute, and if you do, they must be very clear," she said, declining to comment on details of the proposed concessions.

'Retreat better than defeat'

"The thought was that it was better to withdraw the proposal rather than risk a formal veto at this stage," said Paul Richards, a media analyst with WestLB Panmure in London. "The EU competition authorities needed more time to review the disposals" that the companies offered as concessions to try to get around regulatory concerns.

Asked whether EMI was a sacrificial lamb to ensure that Time Warner's AOL merger went through, Richards said: "There is an element to that. The AOL-Time Warner deal must go through; it's $200 billion (in terms of the combined company's market value), whereas the EMI deal is a $20 billion joint venture."

The European Commission has blocked 13 proposed mergers in its 10 years of regulating such transactions. Companies withdrew another 14 ahead of likely vetoes. Back to top


EU regulators seen blocking EMI, Time Warner deal - Oct. 5, 2000

AOL, Time Warner offer concessions to EU regulators - Sept. 22, 2000

Time Warner, EMI ink deal - Jan. 24, 2000

AOL and Time Warner to merge - Jan. 10, 2000


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