EC starts Sony BMG merger review


BRUSSELS - The European Commission has opened its re-examination of the merger between Sony Corp. and Bertelsmann's music units, seven months after an EU court threw out their approval.

The Commission -- the EU's anti-trust authority -- said it would decide by March 1 whether to clear the merger or launch a four-month in-depth probe into Sony BMG Music Entertainment.

The deal to create the world's second largest music company behind Vivendi's Universal Music Group was initially cleared by the Commission in July 2004. But in July 2006, the EU's Court of First Instance annulled the decision, ruling that the Commission had not properly investigated the potential consequences of the merger.

The court decision effectively put on ice any other plans by the music majors for further consolidation; merger initiatives by EMI Group and Warner Music were subsequently shelved.

The Commission will now take a second look at the deal, and with such a large, complex and controversial case, a four-month investigation is expected. During the in-depth probe, the Commission can demand classified company data, and hold hearings involving both the merging parties and other interested groups. It also has the authority to block the deal or demand changes to the merged company before granting its approval.

The Court appeal was originally lodged by independents' group Impala, which said the merger would muscle out smaller labels and prevent newcomers from breaking into the market. In a surprise move, the judges ruled that the Commission decision had been "riddled with errors" and annulled it. They said the Commission failed to show that the then-five music majors were not colluding over market prices or that they would not afterwards.

Last October, Sony and Bertelsmann appealed the Court of First Instance decision at the EU's top court, the Luxembourg-based Court of Justice. The appeal could last two years, and is almost certain to emerge after the Commission's decision on the new merger bid. But there are fears that if the Commission blocks the second bid, and the Court upholds the appeal, it could create a legal quagmire.