EMI, Bertelsmann call it quits

Companies upbeat about their performance as stand-alones

Despite last-minute efforts to secure a deal, the proposed $14 billion merger of EMI and BMG has fallen through.

The fate of the linkup between the British music major and BMG, the music division of German media group Bertelsmann, was sealed after it became clear that European regulators wouldn’t give the deal a thumbs-up without a prohibitive degree of asset divestiture, said EMI Recorded Music chief Ken Berry.

“If we disposed of too much, it meant that the value of the synergies went away,” Berry told Daily Variety. “At the end of the day, we just couldn’t find our way through the maze.”

Contrary to numerous press reports during the discussions, however, Berry maintained that the sell-off of EMI imprint Virgin Records — or any of the two congloms’ marquee labels — was never in the cards. Rumors emanating from the European Commission in Brussels in recent days indicated a negative disposition to further consolidation of the worldwide record biz.

The five months of talks between EMI and BMG, initiated by Bertelsmann, followed EMI’s attempted $20 billion marriage to Warner, a deal that also collapsed due to anti-competitive concerns.

But Berry maintained that the exploratory talks with Bertelsmann (a deal was never formally put on the table) seemed justified in the beginning because of the differences between the two deals.

Specifically, Bertelsmann doesn’t have the dominance over Internet distribution that AOL Time Warner enjoys, and BMG’s music-publishing assets are far more modest than those of Warner Music. Dominance of both the Net and publishing were said to be sticking points for regulators in the EMI-Warner deal.

As a stand-alone company, EMI may be more severely affected by the failure to do a deal than either BMG or Warner, and it could once again become a target for acquisition by a non-music company.

But BMG isn’t without its concerns for the future, either. Among the most pressing, industry watchers say, is the renegotiation of its distribution pact with teen-pop powerhouse Jive Records, which has been a crucial cash generator for BMG over the past year.

Because of the label’s success, however, Jive boss Clive Calder will likely be looking for more lucrative terms when the current deal expires in June.

EMI profits up

For its part, EMI took pains to put a positive spin on its plight, announcing that the group’s sales for the year ended March 31 were up 12% to $3.86 billion, with profits up 6% to $371 million. Full results are not due until May 22.

“We are the world’s third-largest record company and the largest music publisher, and we will continue to take bold steps to build our business,” EMI chairman Eric Nicoli said. “I am delighted that we have produced very good results and further strengthened our business despite the inevitable distractions over the period of merger discussions.”

BMG was equally sanguine about its own future as a stand-alone.

“While the benefits of becoming the world’s largest music company are clear, a merger is not essential for BMG’s continued success,” said BMG chairman and chief exec Rolf Schmidt-Holtz.

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