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Sun 5 Aug 2012 11:15 AM

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Qatar-backed $1.9bn Universal-EMI deal faces US challenges

The US Senate's antitrust panel urged officials to scrutinise the music merger

Qatar-backed $1.9bn Universal-EMI deal faces US challenges
Universal Music Group may face obstacles in the US to its bid to buy EMI’s music unit.

Universal Music Group, whose parent company Vivendi is part-owned by Qatar, may face obstacles in the US to its bid to buy EMI’s music unit, just weeks ahead of an EU investigation into the $1.9bn deal.

The Democratic chairman and the ranking Republican on the US Senate's antitrust panel urged the US Federal Trade Commission at the weekend to carefully scrutinise Universal Music Group's proposed acquisition of a big chunk of rival EMI.

In a rare show of bi-partisanship, the letter from Senate antitrust subcommittee chairman Herb Kohl, a Democrat, and Republican Mike Lee comes on the heels of a June 21 hearing to examine the $1.9bn deal, Reuters reported.

While Kohl and Lee refrained from drawing any conclusions about whether the proposal violated antitrust law, they told FTC Chairman Jon Leibowitz the acquisition "presents significant competition issues that merit careful FTC review to ensure that the transaction is not likely to cause substantial harm to competition in the affected markets."

Their six-page letter outlined the panel's findings from its investigation into the proposed transaction, which was announced in November.

A spokesman for University Music Group said in acknowledging the Senate panel's letter that the company had expected a thorough review of the deal and that it was working closely with the FTC to address the issues. "We remain confident of earning regulatory approval," the spokesman added.

US-based Universal, owned by Paris-based Vivendi, offered to buy EMI's recorded music unit from Citigroup. It was announced in June Qatar Holding had increased its stake in Vivendi to two percent, valuing its stake at around €354m ($468.81m).

Combining Universal Music Group, which has a star lineup of Lady Gaga and Rihanna, with EMI's recorded music unit, whose catalog includes Katy Perry, the Beatles and Pink Floyd, would give the already powerful company a 40 percent share of the US market.

As part of its review of the deal, the FTC has been making inquiries about the pricing power of retailers like Apple and Amazon, who use low-priced songs to attract customers for more expensive goods.

It is also asking about allegations made by consumer groups and others that Universal has been reluctant to license its enormous catalog of must-have music to digital startups, or has licensed the music only on onerous terms.

"We also urge the commission to be mindful of the changes in the music industry in the last decade, particularly the shift to online distribution as the preferred way consumers purchase music," Kohl and Lee wrote.

In Europe, where the deal is also facing scrutiny, Universal has also been working to allay competition concerns. Last week, Universal said it had come up with concessions that should help satisfy European Union antitrust regulators.

As part of negotiations to appease the EU regulators, Universal has reportedly offered to sell EMI's classical, jazz and Virgin Records labels.

The EU watchdog has set a September 6 deadline for its decision.

Impala, a lobbying group for independent music companies, has urged EU regulators to block the deal.

“The impact of these mergers on artists is significant as their power will be reduced... [Artists] will find it more difficult to make a living, to get the best radio or TV slots, or get into the charts, or headline festivals, or make it onto the covers of magazines… unless they are signed to Universal,” Helen Smith, executive chair of Impala, told Arabian Business.

“It would basically mean you would have two companies deciding which artists are suitable for our children to listen to tomorrow and that is not the kind of message the regulators want to give,” she added.

* With agencies

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