Court annuls EU approval for Sony-BMG merger

LUXEMBOURG/LONDON: A European Court annulled on Thursday the European Union’s approval of a ’04 merger between Sony Music and BMG, leaving the world’s second biggest music company in a state of limbo.

The surprise ruling by the European Court of First Instance, Europe’s second-highest tribunal, also cast major doubt on the viability of a merger between EMI Group and Warner Music, which are engaged in a duel to buy each other.

The European Commission said it would have to re-examine the merger that created Sony BMG, a 50-50 JV between Japanese electronics conglomerate Sony and German media conglomerate Bertelsmann. It can also appeal against the ruling.

The latest decision means Sony Music and BMG would have to submit its merger plan again to the EC, which would then revisit it taking into account current market conditions. EMI and Warner, the world’s third- and fourth-largest music companies, respectively, have each offered about $4.6bn to buy the other, with both bids rejected.

“It greatly reduces the possibility of EMI-Warner happening in the short term,” Credit Suisse analyst Simon Baker said. “It seems to pile on regulatory risk for EMI and Warner, especially at a time when there were an increasing number of people that would have been backing the inevitability of this deal.”

The case against the creation of Sony BMG was brought by independent record companies, who claimed that shrinking the industry from five major players to four consolidated market dominance too much.

“Today’s judgement does not affect the validity of the Sony BMG joint venture, which has been up and running since August ’04 — after having been notified and investigated by the European Commission under the Merger Regulation,” Bertelsmann said in a statement.

“We are studying the judgement carefully and shall discuss the appropriate next steps with the European Commission.” Sony said it would also carefully examine the judgement.

Along with Vivendi’s Universal Music, the world’s largest music company, Sony BMG, EMI and Warner account for about three out of four CDs sold globally.

“The Commission did not demonstrate to the requisite legal standard either the non-existence of a collective dominant position before the concentration or the absence of a risk that such a position would be created as a result of the concentration,” the Court of First Instance said in a statement.

The EC cleared Sony BMG in ’04, overcoming its initial suspicions of tacit price collusion among the major music companies. It said at the time it would keep a close eye on the industry “as it becomes even more concentrated and would very carefully scrutinise any further major concentration in the industry.”