Universal Music Group Gets the OK to Buy BMG

BRUSSELS, Belgium – EU regulators gave Universal Music Group clearance Tuesday to buy BMG Music Publishing for about for about $2.09 billion in a deal that will create the world's largest music publishing company.

The EU warned, however, that its "serious doubts" about the deal's effect on online music were soothed only by the companies' plan to sell the rights to some hits from the '80s and '90s by artists such as Justin Timberlake, Iron Maiden and R. Kelly.

Combining the world's No. 3 and No. 4 music publishing catalogs will give Universal the publishing rights to artists as diverse as Mariah Carey, U2, 50 Cent, Elton John and Leonard Bernstein. With a 22 percent market share, it will scrape ahead of current market leader EMI Group PLC.

EU approval was the last hurdle for the deal, which Universal said would close shortly. It is separate from the merger of the Sony-BMG music units more than two years ago that the EU is now re-examining.

Music companies have been looking to consolidate as the market for physical CDs declines rapidly, but risk trouble with regulators if they pick partners within the industry as the number of major players shrinks.

EMI, which has long flirted with Warner Music Group, tried to skirt this problem on Monday by agreeing to a $4.7 billion bid from private equity firm Terra Firma — a bid that may yet trigger a higher offer from Warner.

Bringing Universal and BMG under one roof "will create a publishing business that is even better suited to serve our songwriters, composers and business partners in this challenging marketplace," said Universal President Zach Horowitz.

Universal is the world's largest music company, and its publishing arm controls the rights to songs by artists such as Mary J. Blige and Chamillionaire. That new enlarged unit will trade under the Universal name and will be led by Los-Angeles based David Renzer, the current chairman and CEO.

Universal will keep the American hit list of Rondor, which controls the rights to pop classics by the Beach Boys, Michael Jackson and Aretha Franklin but must sell the British arm that owns songs by many bands such as '80s chart toppers Dire Straits.

BMG — owned by German media company Bertelsmann AG — has the rights to more than a million songs by recent artists such as Nelly, Maroon 5 and Coldplay, as well as older favorites by Barry Manilow and other entertainers.

The European Commission said it had identified antitrust problems in the way the acquisition was originally structured because Universal would have controlled the rights to more than half of the chart hits in some countries, forcing all online and mobile music services to do business with them.

It said publishers are increasingly pulling online rights away from traditional national collecting societies — which pick up royalties and distribute them to copyright holders — and transferring them to newer European-wide groups.

This means the balance of pricing power has shifted in favor of the publishers, the EU said.

"In a number of countries, Universal would even control more than half of the chart hits and thereby become a 'must-have' product for all online and mobile music services, whose possibilities to circumvent Universal would be significantly reduced," it said.

Vivendi SA's Universal had resolved the issue by promising to sell several significant song catalogs — mostly the European rights to British and American pop hits owned by Zomba UK, 19 Music, 19 Songs, BBC music publishing, Rondor UK as well as the European licenses for the U.S.-based Zomba Music Publishing.

The Zomba catalog owns songs written by Max Martin's Swedish hits factory for Britney Spears and the Backstreet Boys that dominated the '90s charts, while 19 has the rights to hits by the Spice Girls and other acts propelled to success by manager and "American Idol" creator Simon Fuller.

The selloffs go beyond what the Commission wanted because it was more viable to divest complete copyrights, including performance and print rights.

But independent record label group Impala sounded a note of warning, saying it could still take court action to reverse EU approval — as it did in the deal joining the music units of Sony Corp (NYSE:SNE - news). and Bertelsmann that the EU was forced to look at again.

Impala, which recently struck a deal with Warner to eliminate its concerns ahead of a possible bid for EMI, said it still had to judge if Universal and BMG's selloffs went far enough to keep competition alive.

"It is vital that Universal/BMG's excessive market power is curbed and we will compare this in detail with what we have agreed with Warner," said Martin Mills, chairman of Impala and the Beggars Group label.