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EMI, BMG end merger talks
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May 1, 2001: 1:37 p.m. ET
Britain's EMI and German music company walk away from merger discussions
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NEW YORK (CNNfn) - EMI Group, the No. 3 music company, and Bertelsmann's BMG music unit ended merger talks Tuesday as regulatory obstacles became too difficult to clear.
EMI, which represent popular artists such as the Spice Girls, Fat Boy Slim, and Radiohead, would have been forced to sell prized businesses to get antitrust approval. BMG's artists include Whitney Houston and David Bowie.
A combination with BMG would have created the world's biggest music company, one that would bring together legendary artists such as EMI's Beatles with youthful stars such as BMG's Christina Aguilera. The merger would also have created an industry powerhouse to rival leader Vivendi's Universal Music. However, regulators were opposed to a merger that would have shrunk the world's five biggest music groups to four.
"After exhaustive analysis and discussion, we have been unable to find a deal with Bertelsmann which works both for shareholders and regulators," EMI Chairman Eric Nicoli said.
The failed merger is the second for EMI recently; the company pulled out of talks with AOL Time Warner's (AOL: up $0.50 to $51.00, Research, Estimates) music business in October after European Union regulators said it would dominate the delivery of music over the Web. AOL Time Warner is the parent company of CNNfn.com.
"Our companies will now continue along their respective paths," Bertelsmann Chairman & CEO Thomas Middelhoff said.
The 100-year old EMI has been rumored to be in talks with various parties since its demerged from electronics company Thorn in 1996. In the past four years, EMI has been linked to Yahoo, News Corp. and Disney. A deal with Bertelsmann would have been the easiest combination for EMI, analysts have said. The music publisher now could opt for a manufacturing and distribution deal, press reports said.
EMI reported a six percent gain in pre-tax profit to £260 million ($371.6 million) on sales of nearly £2.7 billion.
EMI and Bertelsmann were hoping to persuade the European regulators that a merger would help the companies to compete in a vastly changed media landscape, with the creation of media giants such as Vivendi Universal.
BMG Entertainment has 20 percent share of the music market, behind the 28 percent held by Vivendi (V: down $0.06 to $67.95, Research, Estimates).
A merger with German-based Bertelsmann's BMG music arm would have reaped cost savings of around 200 million pounds ($288 million) a year from duplicated overheads and streamlining distribution, administrative and manufacturing costs, analysts said.
EMI previewed full year results due May 22. EMI said that unaudited sales rose 12 percent to almost £2.7 billion and group operating profit excluding associates and HMV music stores rose 14 percent to £330 million. The company also said adjusted pretax profit increased by 6 percent to about £260 million.
Full trading results for the 12 months ended March 31 will be presented in detail on May 22, the company said.
EMI shares rose 2.5 percent to 460 pence in midday trade in London.
-- from staff and wire reports 
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