WASHINGTON — Antitrust experts say the proposed merger between Polygram and Seagram will get a close look from regulators who blocked a similar deal involving Polygram in the mid-1980s.
When Seagram CEO Edgar Bronfman Jr. announced his company was going to purchase Polygram for $10.6 billion, creating the largest concern in the music business, he envisioned no serious trouble winning the blessing of regulators. But back in the mid-1980s, the Federal Trade Commission blocked Warner Communications’ attempt to acquire Polygram, and some say the Seagram/Polygram deal is too similar to slide by without strong regulatory scrutiny.
Quarter of market
One of the objections raised by the FTC to the Warner/Polygram deal was that it would give the merged company 26% of the market. The Seagram/Polygram deal would create a company with 25%. It would also reduce the number of major recording companies from six to five.
Robert Burka, an antitrust attorney at Foley & Lardner, said the structure of the music industry hasn’t changed very much since the FTC blocked the proposed Warner/Polygram merger more than a decade ago. Furthermore, Burka said, that deal was blocked during the Reagan administration: an administration that was almost hostile to its own regulatory review. “The current administration is applying the antitrust laws much more aggressively,” Burka said.
All large mergers and acquisitions are reviewed by antitrust lawyers at either the Justice Dept. or the FTC. Because of the FTC’s history with Polygram, it is expected to review the proposed Seagram/Polygram deal.
Douglas Gomery, a U. of Maryland professor who specializes in the economics of the entertainment business, also remarked that there have not been any significant changes in the structure of the music industry since the FTC blocked the Warner/Polygram deal in the mid-1980s. “There were six major companies then, and there are six major companies now,” Gomery said.
Wall Street speculators who specialize in mergers have begun to focus on the potential antitrust hurdles and are now concerned that the deal may not close. Polygram’s stock dropped just over $2 to $54.50 as more and more traders became aware of the FTC’s history in blocking the Warner/Polygram deal.
One source of trouble for Seagram could come from potential competitors who could petition the FTC to block the deal. But Time Warner’s senior vice president Tim Boggs said his company will not jump into the fray and he doubts any other music-industry giants will interfere either. “This is not a threat to the existing companies,” said Boggs, who added that when one company does well, the others also benefit. “Someone does not go into a store to buy a Polygram record,” Boggs said.