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EXCLUSIVE: Universal will shed Parlophone in UK - but keep The Beatles

Tim Ingham
Sgt Pepper The Beatles

Music Week can confirm Universal's final proposed package of European divestments related to its £1.2bn takeover of EMI - revealed in a leaked internal memo from EMI boss Roger Faxon.

Universal submitted its final remedies package to the EC earlier this afternoon.

This bundle is yet to be scrutinised ('market tested') by third-parties and potential competitors, but shows what assets a combined UMG/EMI would be willing to sacrifice in order to bring its market power to a level deemed appropriate by the EC.

In surprise news, UMG will now keep Virgin Records - previously a potential divestment both Richard Branson and IMPALA co-president Patrick Zelnik have declared an interest in.

According to Faxon's memo, sent to UK employees at 4.30pm today,

* In the UK, an entity composed of the rosters and catalogues of Parlophone (excluding the Beatles, both as a group and individually), Mute, Chrysalis (excluding the Robbie Williams catalogue) and Ensign would be sold. Included in that disposal would also be the Pink Floyd catalogue and the recently concluded new deal with David Guetta, along with his catalogue. Note that these disposals only relate to exploitation of this repertoire within the EEA (European Economic Area).

* EMI Classics and Virgin Classics would also be divested in the EEA

* EMI’s share of the NOW brand and compilation business in the EEA would also be sold. However Universal would keep its share and participation in the Now compilation venture

* The proposal also includes the divestment of a number of EMI’s operating businesses in Continental Europe. Those local operating companies are EMI France, EMI Belgium, EMI Czech Republic, EMI Poland, EMI Portugal, EMI Sweden and EMI Norway

* Universal is also proposing to divest some its own businesses, principal among which are Sanctuary, Co-Op, and UMG Greece plus several European jazz labels

* They would also commit to terminate or not to bid for a number of high-profile European licenses for major Anglo-American and domestic repertoire, namely Disney Records, Hollywood Records, Ministry of Sound, and Restos du Coeur in France

Following a short period of market testing on the divestments package, a final decision by the EU College of Commissioners will not take place until the second half of September.

Faxon told staff: "As I am sure you will have read, the European Commission has raised formal objections about the effect of bringing EMI and Universal together, and the two parties have since been working to find a potential remedy. As you can imagine, there are often significant differences in view between the regulators and the company applying for approval, but in the end, the two need to find a way of bridging those differences so that the merger can go forward.

He added: "In the last few days, Universal has identified a possible set of solutions that it believes should resolve the Commission's concerns. I emphasize the word 'possible' because before a resolution can be finalized the regulator will seek the input of a variety of third parties. The market testing of a proposed set of remedies is designed to help the regulator understand the implications of the proposed package, before they make a final determination. So, following the feedback from the market, there is obviously the chance that the proposed set of remedies will change before they become final.

"The EU regulators will soon be putting the remedy package proposed by Universal into that market testing. Inevitably much of what is in that package will leak to the press, and that has already started to happen. As such, I wanted to make sure that you heard what is really going on directly from me."

"Of course, regulatory reviews elsewhere ­ particularly in places such as the United States and Australia ­ will also need to be completed, as well as a number of practical logistics.

"With all that in mind, it's possible that with a wind behind our backs we could close the sale and EMI could pass to UMG as early as the end of September. However I think it is more realistic to plan for a close at the end of October.

"It is only at that point that any of the disposals could be put up for sale - and even then it will take some additional time for the sale to be completed of any businesses that are being divested. So as I say, we have some considerable time to make plans that take into account the needs of our artists, and in the meantime we will be working as hard as ever to deliver the successful outcomes that our artists so richly deserve."

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Tags: universal, emi, UMG/EMI Merger, The Beatles, Parlophone

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