EC MAY HAVE "SERIOUS PROBLEMS" WITH EMI-BMG MERGER

The British paper The Independent reported today (1/30) that merger talks between EMI and BMG have stalled after encountering serious problems with the European Commission.

EMI ran into similar problems during its attempted merger with Time Warner-owned Warner Music Group late last year. At the time, the EC demanded the two companies dispose of sufficient record labels to create a new competitor in the music industry. According to the Independent, those same demands are being repeated.

But a spokesman for Bertelsmann cited by Reuters said the company still believed it had a 50/50 chance at completing its proposed merger with EMI. Although no deadline had been set, the spokesman told Reuters that the talks were running according to plan.

An EMI spokeswoman said, "Talks continue and we want to reach a conclusion as soon as possible."

BMG Chief Rolf Schmidt-Holtz said the slow progress towards a deal was not just an issue of regulatory approval. "It's to do with everything," he told Tuesday's Financial Times Deutschland.

While concessions of some sort are expected to soothe regulatory concerns over market dominance, it is still unclear whether they would be too severe to impede a deal.

The Independent reported that EMI told Bertelsmann, BMG's parent company, that it would not be prepared to dispose of Virgin, one of its biggest labels, in order to facilitate the merger.

Bertelsmann earlier expressed confidence that it would have an easier time negotiating with the Commission's competition authorities compared to the EMI-WMG deal.

"Bertelsmann thought that because it was European it could succeed with the Commission where Time Warner failed," said one source. "That's now open to question."