Universal Music Group Faces Calls for More Asset Sales to Seal EMI Deal

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"Significant asset sales would reduce synergies," says one analyst amid a report that UMG may be asked to divest additional EMI businesses worth $370 million.


LONDON - Executives from Universal Music Group owner Vivendi on Thursday met again with European regulators in Brussels to discuss the company's proposed concessions to get approval for its planned acquisition of EMI's recorded music business.

And according to one report, the regulators told the music major that while most groups seem satisfied with its proposed concessions and behavioral promises, some are pushing for more asset sales that could force it to give up more of the financial benefits of the deal.

Independent record label group Impala has been among those groups that have opposed the EMI deal, arguing the merged company would end up with too much market power.

Universal Music has offered to sell 60 percent of EMI's European assets to reduce the combined entity's market share in Europe to below 40 percent.

While some rivals oppose the package, Universal Music was told Thursday that a majority of third parties find its concessions sufficient, according to Bloomberg.

More meetings to fine-tune UMG's disposal promises are expected.

Bloomberg reported that UMG may in the worst case have to divest an additional €300 million ($370 million) in global assets.

This could mean that the company may have to sell more than half of EMI's recorded music business, UBS analyst Polo Tang said.

A source said UMG has budgeted for the possibility of global divestitures.

Still, Tang said Friday morning that this puts in jeopardy some of the financial benefits of the acquisition. "Vivendi agreed to buy EMI recorded music for £1.2 billion ($1.9 billion) and expected more than £100 million ($156 million) of synergies," UBS analyst Polo Tang said. "Significant asset sales would reduce synergies of Vivendi, but may also put pressure on the balance sheet."

In terms of the balance sheet, he explained: "Vivendi has limited credit rating headroom, and Vivendi would still have to pay Citigroup £1.2 billion ($1.9 billion) [in September for EMI], while looking for buyers for sale of assets."

In a positive though, "global disposals could help Vivendi get approval in the U.S. where senators sent a letter last week to Federal Trade Commission urging them to "carefully review" the deal given competition issues," Tang said.

EMI and UMG representatives weren't immediately available for comment.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai