European Union competition regulators are set to provide Universal Music with a formal ‘statement of objections’ in relation to its bid to buy Downtown Music.
According to the EU Merger Control Procedures, the ‘SO’ is a document issued to the “notifying parties” in a merger after the European Commission has undertaken a “market investigation” and concluded that “the planned merger will likely impede competition”.
The SO is described by regulatory news website MLex as a “formal escalation” of the EU’s concerns about the Downtown deal. Once it’s issued, Universal will have ten working days to respond to the statement in writing and can also request a closed-door oral hearing if it so wishes.
News that a statement of objections is incoming follows a meeting between EU officials and Universal representatives yesterday. These developments have been welcomed by critics of the Downtown deal within the independent music community, including pan-European trade group IMPALA.
It says, “we welcome this news and look forward to official confirmation and details of the objections”, adding "we will continue to liaise with the European Commission regarding our members' concerns”.
Universal remains confident, at least officially, that it will ultimately get EU approval for its Downtown acquisition. Asked about the latest developments, a spokesperson told MLex, “This deal is about offering independent music entrepreneurs access to world-class tools and support to help them succeed”.
They then added, “We are confident that - by continuing to demonstrate the benefits of the transaction for artists, labels, consumers and independent music in Europe - it will ultimately be cleared by the European Commission”.
Universal’s share price - which hit a one year low of €21.53 yesterday - jumped sharply on the news, reaching a high of €23.07 just before the Euronext Amsterdam exchange closed trading. That’s still a long way off the company’s high of €29.19, and even further from the €30 per share trigger that unlocks the next tranche of CEO Lucian Grainge’s €100 million megabonus.
The EU launched an in-depth ‘Phase II’ investigation into Universal’s Downtown deal back in July. Many in the indie community have expressed concern about the biggest music rights company in the world taking ownership of a business that millions of independent artists and labels rely on for distribution, and for the management of their rights, royalties and data.
When it announced its full investigation in July, the EU regulator identified “preliminary concerns” that Universal taking control of Downtown - and with it the FUGA, CD Baby, Songtrust and Curve businesses - would reduce competition in the music distribution and artist/label services strands of the music industry within the European Economic Area.
It also noted that “Downtown processes commercially sensitive data of third-party record labels”, which creates a separate set of concerns.
With yesterday’s announcement that the regulator will now formally present a statement of objections to Universal, those fears seem to have been realised as part of the investigation.
The statement of objections is a private document that will be shared with Universal and Downtown, maybe as soon as this week. Although the EU regulator may also provide a public statement at the same time summarising the top level concerns and issues.
Once Universal has the EU’s formal statement of objections, it could propose remedies that might address the regulator’s concerns. However, those opposing the deal in the indie community have already stressed that they don’t believe there are any suitable remedies.
In the past when big record labels and music publishers have merged, a key remedy has been for the merging entities to commit to sell off a portion of their catalogues in markets where the competition concerns are most acute.
But this isn’t a traditional catalogue acquisition deal, because Universal isn’t buying catalogue. Instead it is acquiring various services businesses, as well as distribution infrastructure and data. So it will be interesting to see what remedies - if any - Universal proposes, and whether any remedies are enough to allay the fears of European regulators enough to allow the deal to proceed.