June 18 (Bloomberg) -- Bertelsmann AG, Germany's largest media company, and Sony Corp. will get unconditional European Commission approval to merge their music units after regulators decided they had no evidence to challenge the deal, people familiar with the situation said.
The European Union's Brussels-based regulatory arm won't seek any concessions in return for clearance, said the people, who declined to be identified. The commission last month told the companies the merger of Bertelsmann's BMG and Sony Music would restrict competition, reduce choice and force up CD prices for consumers, people familiar with the situation said then.
The combination of the music units of Bertelsmann and Tokyo- based Sony, with artists such as Christina Aguilera, 24, and OutKast, will create the biggest record company, overtaking Vivendi Universal SA's Universal Music, according to the International Federation of the Phonographic Industry. The approval comes after EU court reversals forced the commission to change the way it conducts probes, lawyers said.
``It is almost inevitable the new internal processes mean there are cases which are dropped, as on reviewing the strength of case, they come to a view they don't have one,'' said Martin Coleman, head of the antitrust practice at London-based law firm Norton Rose. ``Generally, people will welcome a more cautious approach by the commission.''
`Premature'
Commission spokeswoman Amelia Torres called reports that a decision had been reached ``premature'' and declined to comment further at a briefing in Brussels. Oliver Herrgesell, a spokesman for Guetersloh, Germany-based Bertelsmann, also declined to comment, as did Sony. The merger still needs clearance in the U.S.
The Associated Press earlier reported the commission's decision, citing people familiar with the situation.
The decision follows two days of confidential hearings earlier this week in which the commission heard testimony from Sony and Bertelsmann, independent record labels and Internet music providers such as Apple Computer Inc., the maker of the iTunes online service.
`We Will Resist'
Michel Lambot, co-founder of the Brussels-based label Play It Again Sam and president of Impala, an independent record company trade group, said the group may file a complaint at the European Court of First Instance, the EU's highest appeals court, if the commission approves the merger.
``We have three choices: get bought out, go bankrupt or resist,'' Lambot said in an interview. ``We will resist.''
Of the 116 in-depth antitrust investigations the commission has conducted, only 24 have been cleared unconditionally. A recent example is the EU's July 2002 decision to approve Carnival Corp.'s $6.3 billion bid for P&O Princess Cruises Plc without forcing Carnival to scale back its business. Regulators dropped objections after U.K. authorities cleared a rival bid by Royal Caribbean Cruises Ltd.
The five largest recorded-music businesses have in the past four years sought to merge to save money as consumers shift spending to products such as video games and illegal downloading of songs erodes revenue. Regulatory concerns thwarted attempts by EMI Group Plc to merge first with Time Warner Inc.'s music unit in 2000 and then with BMG in 2001.
Collective Dominance
Under European competition case law, the commission can block a merger if it shows that companies would abuse their ``collective dominance'' of the market. The abuse may occur when two or more companies, which aren't economically linked, tacitly agree to set prices. Impala claimed that the merger would result in collective dominance.
Stephen Kinsella, a lawyer at Herbert Smith, said the commission dropped its opposition because there was no evidence of tacit price collusion.
``It was clear weeks ago the commission didn't have a case,'' Kinsella said. ``They hadn't shown evidence of tacit collusion to prove collective dominance.''
The European Court of First Instance in Luxembourg in 2002 threw out three commission merger vetoes, including its decision to block U.K. <A TITLE="Click for more information about travel" STYLE="text-decoration: none; border-bottom: medium solid green;" HREF="http://search.targetwords.com/u.search?x=5977|1||||travel|AA1VDw">travel</A> operator MyTravel Group Plc's 850 million- pound ($1.4 billion) bid for First Choice Holidays Plc. The commission said the combination would have led to collective dominance of the package-tour business.
`Falling Apart'
The court ruled the commission failed to prove the takeover would hurt consumers, ignored evidence that rivals could compete on price and services and underestimated the strength of competition from smaller businesses.
The commission's collective dominance arguments have been ``falling apart'' since the MyTravel ruling, Kinsella said. ``It's incredibly difficult to prove a case of tacit collusion.''
Sony and Bertelsmann argued that industry woes such as illegal Internet music downloading and the increasing power of retailers such as Asda Group Plc, Wal-Mart Stores Inc.'s U.K. unit, and Tesco Plc, Britain's biggest supermarket chain, will restrain their ability to set prices.
Sony Music and BMG had a combined global market share of 25 percent last year, which would have made them the world's biggest record company, IFPI said this week. BMG, the smallest of the five, gained 2.3 percentage points to 11.9 percent last year, after acquiring Zomba, home of artists including Britney Spears.
Universal Music, the No. 1 record company, saw its worldwide share fall to 23.5 percent in 2003 from 25.4 percent a year earlier, IFPI also said. In 2002, Universal Music had benefited from the successes by artists such as rapper Eminem and U2.
The European Union's Brussels-based regulatory arm won't seek any concessions in return for clearance, said the people, who declined to be identified. The commission last month told the companies the merger of Bertelsmann's BMG and Sony Music would restrict competition, reduce choice and force up CD prices for consumers, people familiar with the situation said then.
The combination of the music units of Bertelsmann and Tokyo- based Sony, with artists such as Christina Aguilera, 24, and OutKast, will create the biggest record company, overtaking Vivendi Universal SA's Universal Music, according to the International Federation of the Phonographic Industry. The approval comes after EU court reversals forced the commission to change the way it conducts probes, lawyers said.
``It is almost inevitable the new internal processes mean there are cases which are dropped, as on reviewing the strength of case, they come to a view they don't have one,'' said Martin Coleman, head of the antitrust practice at London-based law firm Norton Rose. ``Generally, people will welcome a more cautious approach by the commission.''
`Premature'
Commission spokeswoman Amelia Torres called reports that a decision had been reached ``premature'' and declined to comment further at a briefing in Brussels. Oliver Herrgesell, a spokesman for Guetersloh, Germany-based Bertelsmann, also declined to comment, as did Sony. The merger still needs clearance in the U.S.
The Associated Press earlier reported the commission's decision, citing people familiar with the situation.
The decision follows two days of confidential hearings earlier this week in which the commission heard testimony from Sony and Bertelsmann, independent record labels and Internet music providers such as Apple Computer Inc., the maker of the iTunes online service.
`We Will Resist'
Michel Lambot, co-founder of the Brussels-based label Play It Again Sam and president of Impala, an independent record company trade group, said the group may file a complaint at the European Court of First Instance, the EU's highest appeals court, if the commission approves the merger.
``We have three choices: get bought out, go bankrupt or resist,'' Lambot said in an interview. ``We will resist.''
Of the 116 in-depth antitrust investigations the commission has conducted, only 24 have been cleared unconditionally. A recent example is the EU's July 2002 decision to approve Carnival Corp.'s $6.3 billion bid for P&O Princess Cruises Plc without forcing Carnival to scale back its business. Regulators dropped objections after U.K. authorities cleared a rival bid by Royal Caribbean Cruises Ltd.
The five largest recorded-music businesses have in the past four years sought to merge to save money as consumers shift spending to products such as video games and illegal downloading of songs erodes revenue. Regulatory concerns thwarted attempts by EMI Group Plc to merge first with Time Warner Inc.'s music unit in 2000 and then with BMG in 2001.
Collective Dominance
Under European competition case law, the commission can block a merger if it shows that companies would abuse their ``collective dominance'' of the market. The abuse may occur when two or more companies, which aren't economically linked, tacitly agree to set prices. Impala claimed that the merger would result in collective dominance.
Stephen Kinsella, a lawyer at Herbert Smith, said the commission dropped its opposition because there was no evidence of tacit price collusion.
``It was clear weeks ago the commission didn't have a case,'' Kinsella said. ``They hadn't shown evidence of tacit collusion to prove collective dominance.''
The European Court of First Instance in Luxembourg in 2002 threw out three commission merger vetoes, including its decision to block U.K. <A TITLE="Click for more information about travel" STYLE="text-decoration: none; border-bottom: medium solid green;" HREF="http://search.targetwords.com/u.search?x=5977|1||||travel|AA1VDw">travel</A> operator MyTravel Group Plc's 850 million- pound ($1.4 billion) bid for First Choice Holidays Plc. The commission said the combination would have led to collective dominance of the package-tour business.
`Falling Apart'
The court ruled the commission failed to prove the takeover would hurt consumers, ignored evidence that rivals could compete on price and services and underestimated the strength of competition from smaller businesses.
The commission's collective dominance arguments have been ``falling apart'' since the MyTravel ruling, Kinsella said. ``It's incredibly difficult to prove a case of tacit collusion.''
Sony and Bertelsmann argued that industry woes such as illegal Internet music downloading and the increasing power of retailers such as Asda Group Plc, Wal-Mart Stores Inc.'s U.K. unit, and Tesco Plc, Britain's biggest supermarket chain, will restrain their ability to set prices.
Sony Music and BMG had a combined global market share of 25 percent last year, which would have made them the world's biggest record company, IFPI said this week. BMG, the smallest of the five, gained 2.3 percentage points to 11.9 percent last year, after acquiring Zomba, home of artists including Britney Spears.
Universal Music, the No. 1 record company, saw its worldwide share fall to 23.5 percent in 2003 from 25.4 percent a year earlier, IFPI also said. In 2002, Universal Music had benefited from the successes by artists such as rapper Eminem and U2.