Legal Drama, Music Business

Painful Divestitures & Uncertainty Ahead as EMI-Universal Merger Draws Nearer, CEO Alludes in Memo to EMI Staff Globally

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AML Industry, lots happening in my neck of the woods in the music industry that is  relevant to Industry folk here and on the continent. This memo just came in today from EMI’s CEO Roger Faxon and is making its way round key industry insider websites and blogs including THR, Esq. AML Africa music industry folk, note the discussions on Anti-trust issues which I raised and introduced you all to in my IROKO-Afrinolly discussions. Indeed when you have two large companies like EMI-Universal merging, Anti-trust issues are and should be raised, addressed and a solution worked out.

I think Faxon does a good job of capturing what is at stake for all, including the music industry as a whole, so I will let you all read on.

(AML Terminology – Divestiture is “the partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large lots over a short time period.” – Investopedia.com)

Sent: Friday, July 27, 2012 11:20 AM
To: All EMI Music Staff Globally
Subject: Message from Roger Faxon 

We certainly have been on quite a journey over the last couple of years. It has been 18 months since Citi took control of EMI, 14 months since Citi put EMI up for sale, 9 months since agreements were reached to sell each of EMI Music and EMI Music Publishing, and just one month since the ownership of EMI Music Publishing passed to the Sony consortium. And now we are moving toward the next milestone in that journey – the completion of the sale of EMI Music to UMG. The final step before that can happen is for UMG to work through with the anti-trust authorities any issues raised by the combination of EMI and UMG – and that work is well underway. 

To most of us the anti-trust process is opaque, shrouded in obscure legal concepts and impenetrable economic theory. But, its whole purpose is to protect consumers from anti-competitive behaviour, so regulators take the process very seriously. To understand the implications of any merger they need to sort through and grapple with the intricacies of the industry or industries concerned, and the specific characteristics of the affected businesses. They then have to find a way of resolving any issues they find. In our case, UMG and each of the regulators around the world have been doing just that. Since the market is different in each region of the world, the issues and the difficulty of resolving them also tend to be different. So, in a number of jurisdictions, Universal has been able to resolve the issues and has already received clearance. Now the focus is clearly on resolving the issues in the largest and most complex markets – and none is more important than Europe. 

As you have read, and as I have relayed to you in recent emails, the European Commission has raised formal objections about the effect of bringing EMI and Universal together. Universal and the EU regulators have been searching for a way through, to find a remedy to the problems the regulators see. As you can imagine, there are often significant differences in view between the regulators and the company applying for approval, as to the effects of the transaction on consumers. But, in the end, the two need to find a way of bridging those differences so that the merger can go forward. 

In the last few days, Universal has with the Commission identified a possible set of solutions that it believes should resolve the Commission’s concerns. I emphasize the word ‘possible’ because before a resolution can be finalized the regulator will seek the input of a variety of third parties. The market testing of a proposed set of remedies is intended to aid the regulator in fully understanding the implications of the remedies, before they make a final determination. So there is a chance that the proposed set of remedies will change before they become final. 

The EU regulators will soon be putting the remedy package proposed by Universal into that market testing. And as I said in my note of last week, inevitably much of what is in that package will leak to the press, and that has already started to happen. So, rather than force you to scour the press to put the bits and pieces of the story together, I wanted to make sure that you heard it directly from me. 

Here is what is being proposed: 

• In the UK, an entity composed of the rosters and catalogues of Parlophone (excluding the Beatles, both as a group and individually), Mute, Chrysalis (excluding the Robbie Williams catalogue) and Ensign would be sold. Included in that disposal would also be the Pink Floyd catalogue and the recently concluded new deal with David Guetta, along with his catalogue. Note that these disposals only relate to exploitation of this repertoire within the EEA. 

• EMI Classics and Virgin Classics would also be divested in the EEA. 

• EMI’s share of the NOW brand and compilation business in the EEA would also be sold. However Universal would keep its share and participation in the Now compilation venture. 

• The proposal also includes the divestment of a number of EMI’s operating businesses in Continental Europe. Those local operating companies are EMI France, EMI Belgium, EMI Czech Republic, EMI Poland, EMI Portugal, EMI Sweden and EMI Norway. 

• Universal is also proposing to divest some its own businesses, principal among which are Sanctuary, Co-Op, and UMG Greece plus several European jazz labels. 

• They would also commit to terminate or not to bid for a number of high-profile European licenses for major Anglo-American and domestic repertoire, namely Disney Records, Hollywood Records, Ministry of Sound, and Restos du Coeur in France. 

I can only imagine the questions that are going through your mind as you read this. I am sure they are pretty close to the questions that Ruth and I have been asking in the last couple of days as all of this has come together. And over the coming days and weeks, we will endeavor to answer as many of them as possible. It is important to say that we have time – in fact quite a lot of time – to work through how all of this is going to unfold and how it will affect each of you and the artists we are so privileged to represent. 

From this point forward what is going to happen? Well obviously the remedy proposal needs to proceed through market testing. While that testing should not take long, the process to get to a final decision by the EU College of Commissioners will take some weeks. As of now, their vote is not scheduled until the second half of September. Of course the regulatory reviews elsewhere – particularly in places such as the United States and Australia – will also need to be completed. And even then, there are still some practical logistics of the sale that have to be completed as well. 

With a wind behind our backs we could close the sale and EMI could pass to UMG as early as the end of September. However I think it is more realistic to plan for a close at the end of October. In any event it is only at the close of the deal that any of the disposals could be put up for sale. Then of course there will be an extended period before that sale process results in a completed transaction. So as I say, we have some considerable time to get this sorted, and to make plans that take into account the needs of our staff and our artists. 

This is a lot to digest, I know. While there isn’t much more that I can say about the proposal right now, I do want to take the opportunity to talk to you about it, and we will be setting up an all-staff call for Monday. I’ll also be briefing senior management so that they will be able to meet with you to discuss any immediate issues that arise. 

As soon as I have any more concrete news for you, rest assured that I will contact you all right away. In the meantime, as always, my door and my inbox are open if you would like to get in touch. 

Roger”

-Uduak
@uduaklaw

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Africa Music Law™

AFRICA MUSIC LAW™ (AML) is a pioneering music business and entertainment law blog and podcast show by Fashion and Entertainment Lawyer Ms. Uduak Oduok empowering the African artist and Africa's rapidly evolving entertainment industry through brilliant music business and entertainment law commentary and analysis, industry news, and exclusive interviews.

Credited for several firsts in the fashion and entertainment industry, Ms. Uduak is also a Partner and Co-Founder of Ebitu Law Group, P.C. where she handles her law firm’s intellectual property law, media, business, fashion, and entertainment law practice areas. She has litigated a wide variety of cases in California courts and handled a variety of entertainment deals for clients in the USA, Africa, and Asia.

Her work and contributions to the creative industry have been recognized by numerous organizations including the National Bar Association, The American University School of Law and featured in prestigious legal publications in the USA including ABA Journal and The California Lawyer Magazine. She is also an Adjunct Professor at the prestigious Academy of Arts University in San Francisco.
For legal representation inquiries, please email (uduak@ebitulawgrp.com). For blog related inquiries i.e. advertising, licensing, or guest interview requests, please email (africamusiclaw@gmail.com). Thank you for visiting Africa Music Law™.

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