The Federal Trade Commission today cleared the $1.9 billion merger between Universal Music Group and EMI Recorded Music without conditions, determining that the combination of the first- and fourth-largest music companies in the world would not substantially lessen competition.
Earlier today, regulators in the European Union also approved the deal. However, they required Universal, which is owned by Vivendi S.A., to sell major assets including its Parlophone label, home to artists such as Coldplay and David Bowie - though it got to keep The Beatles catalogue.
In November, Universal announced its bid for EMI's music business. At the same time, Sony Corp. announced it would buy EMI's music publishing business for $2.2 billion. London-based EMI was seized by Citigroup in February 2011 after its owner, a British private equity firm, was unable to meet loan obligations.
Consumer groups had urged the FTC to block the acquisition, which was the subject of a Senate antitrust subcommittee hearing in June.
"The merger creates a highly concentrated market by eliminating one of only four major record labels and results in an increase in concentration that is five times the level that the DOJ/FTC identify as a cause of concern," the Consumer Federation of America and Public Knowledge wrote to the FTC.
But the FTC didn't see it that way. In a lengthy statement, Bureau of Competition head Richard Feinstein wrote that "Commission staff did not find sufficient evidence that the acquisition would substantially lessen competition in the market for the commercial distribution of recorded music in violation of Section 7 of the Clayton Act."
The FTC found that in the recorded music business, "the products are highly differentiated, and companies compete for distribution in multiple ways."
Universal, the FTC noted, is is very strong in popular new releases -- its artists include Lady Gaga, Rihanna and Justin Bieber. EMI's portfolio, on the other hand, is "much more heavily weighted toward older titles" -- for example, Pink Floyd, Tina Turner and Duran Duran.
The FTC also considered how the deal would affect interactive music streaming services, and found the merger would not give Universal enhanced bargaining leverage.
In explaining the divergent outcome with the EU, Feinstein wrote that "the markets in Europe have a different, larger, and more diverse set of customers, and it appears that the market dynamics relating to digital streaming services differ significantly from those found in the United States."
He also said that the decision to clear the deal was "fact-driven and based largely on the different product portfolios of Universal and EMI."
Universal was represented before the FTC by D. Bruce Hoffman of Hunton & Williams and Glenn Pomerantz from Munger, Tolles & Olson. EMI retained Paul Yde of Freshfields Bruckhaus Deringer and Citigroup hired Wayne Dale Collins of Shearman & Sterling.
Universal in a statement said, "Our investment in EMI will create more opportunities for new and established artists, expand music output and consumer choice, and support new digital services."