So, the possibility of an EMI Warner merger is well and truly back on the agenda this morning, following announcements from both companies yesterday.
As previously reported, speculation has been growing that London based EMI would be subject to one or another takeover bid ever since it issued the first of two profit warnings at the start of the year. Although various investment houses are reported to be interested in acquiring the music company, possibly for its more profitable music publishing business, rival record company Warner Music, which made two offers to buy EMI last year, was also known to be considering making a fresh approach. And EMI confirmed yesterday that Warner had indeed made an initial approach regarding merger on 24 Jan.
Although the EMI board knocked back Warner's takeover offers last year, they are known to believe that an EMI Warner merger would be in both companies' interests (mainly because it would level the playing field a little between them and their much larger competitors Universal and SonyBMG), and indeed they made their own offers to acquire Warner last year too. With that in mind the company's board is expected to take seriously any offer Warner makes, although they stress their rival has so far only made an initial approach and not a firm offer, and even if an offer is made it is not a foregone conclusion EMI chiefs will take it (though if the deal was a good one, there's a chance their shareholders would force them to).
Of course, one of the key reasons for EMI's board and shareholders to be wary of entering into merger talks with Warner would be the chances, or not, of getting the required approval from the European Commission. There has been considerable doubt that such approval could be achieved while EC officials are busy undertaking a review of the Sony BMG merger, which, of course, the European courts last year said should never have been given the go ahead back in 2004. It would be risky for EMI to pursue expensive merger talks with Warner to only get blocked by the regulator six months down the line - especially given the major's current financial position.
But then Warner yesterday announced a deal which could alleviate some of those regulator concerns. The US based major confirmed it had reached an agreement with pan-European independent label trade body IMPALA, whose legal opposition to the SonyBMG merger led to the re-review. The agreement says that IMPALA would not oppose a Warner acquisition of EMI, based on commitments made by Warner to ensure the independent sector's interests are safeguarded in an increasingly consolidated music market.
Confirming that agreement, the major said in a statement yesterday: "Warner Music Group believes that the agreement reached with IMPALA and the measures envisaged under it, by setting a new framework for the relationship between a combined WMG and EMI and the independent music sector, improves the prospects for regulatory approval".
IMPALA also confirmed the deal yesterday, and revealed the commitments Warner had made to it in order to secure its approval for a combined EMI Warner. Should the acquisition go ahead, Warner would make "behavioural undertakings to ensure competition and broad licensing; recorded music divestitures to reduce market share and enhance the competitive scale of the independent music sector; and offer substantial assistance to build the capacity of the independent music sector through industry bodies and the recently announced Merlin initiative".
The indie trade body, added: "WMG is the only major label to work with IMPALA to create a comprehensive framework of solutions to its concerns in relation to previous mergers in front of the EU Commission in 2000 and 2004, as well as the European Court of First Instance in 2005. The independents expect this agreement to be the first in a series of agreements where the majors and the independents work together to meet the challenges confronting the industry and to create new opportunities for the independents. IMPALA believes that the majors and the independents need to work together in confronting all of these challenges".
IMPALA Chairman Martin Mills, whose Beggars Group has a joint venture with Warner Music in Japan, said he hoped the new deal would demonstrate that the indie body was not anti-major for the sake of it, and that the independents were willing to work with major labels that recognised the wider value of supporting the indie sector. Mills: "We have never been anti-major. We understand their issues. Full market access for the independents, whether large or small, is what we have always sought, and what this agreement helps to deliver. We hope to get the support of [EU] Commissioner Kroes to this innovative market-led solution that we believe will benefit musicians and fans alike, and which sets a crucial precedent".
The Warner deal does not affect IMPALA's position on the SonyBMG merger review, or on the proposed merger of Universal and BMG's music publishing companies, which is currently being considering for EU approval. For the time being at least, the trade body will continue to oppose both those mergers.
Meanwhile, whether yesterday's developments now mean a joint EMI Warner is inevitable, remains to be seen. However, Warner chief Edgar Bronfman Jnr's long reported optimism that he will get his hands on EMI eventually, despite the impact of the SonyBMG re-review, seems to be a little bit more justified this morning.