Peter Paterno On The Universal/EMI Divestitures

From: Peter Paterno
Subject: FW: EMI Music - UPDATE
To: Bob Lefsetz

Ah, I so love the antitrust process. It makes so much sense. I especially love the part where, in their infinite wisdom, the European Antitrust Commission makes the merging companies sell off artist contracts for part of the world. So the artist can't mount an effective worldwide campaign to sell his records and is in business with someone he doesn't know. This came up in the last big divestiture and I have artists yelling at me to sue because they got sold off. I point out that the company didn't want to sell them off, the government made them do it and you can't sue because of what the government made them do. Then they get frustrated and start screaming about suing again. Your European Antitrust Commission - we know what you want better than you do.

_____________________________________

From: Faxon, Roger
Sent: Friday, July 27, 2012 8:35 AM?
To: ________________________
Subject: EMI Music - UPDATE

Dear All,

There has been a huge amount of speculation surrounding EMI in the press over the last couple of weeks, as the regulatory process surrounding EMI Music's proposed acquisition by Universal continues. I wanted to be sure that you heard the truth direct from me rather than on the industry grapevine, which is why I am writing to you all today.

The intricacies of the anti-trust world are an impenetrable mystery to most of us, but obviously it's important in any transaction of this nature that the regulators make a full review to ensure that consumers are protected from anti-competitive behaviour. UMG and each of the regulators around the world have been working closely together for many months now to achieve that. Since the market is different in each region of the world, the issues and the difficulty of resolving them also tend to be different. In a number of jurisdictions, such as Japan and New Zealand, Universal has been able to resolve the issues and has already received clearance. Now the focus is clearly on resolving the issues in the largest and most complex markets - and none is more important than Europe.

As I am sure you will have read, the European Commission has raised formal objections about the effect of bringing EMI and Universal together, and the two parties have since been working to find a potential remedy. As you can imagine, there are often significant differences in view between the regulators and the company applying for approval, but in the end, the two need to find a way of bridging those differences so that the merger can go forward.

In the last few days, Universal has identified a possible set of solutions that it believes should resolve the Commission's concerns. I emphasize the word 'possible' because before a resolution can be finalized the regulator will seek the input of a variety of third parties. The market testing of a proposed set of remedies is designed to help the regulator understand the implications of the proposed package, before they make a final determination. So, following the feedback from the market, there is obviously the chance that the proposed set of remedies will change before they become final.

The EU regulators will soon be putting the remedy package proposed by Universal into that market testing. Inevitably much of what is in that package will leak to the press, and that has already started to happen. As such, I wanted to make sure that you heard what is really going on directly from me.

Here is what is included in the package of proposed divestments:

- In the UK, an entity composed of the rosters and catalogues of Parlophone (excluding the Beatles, both as a group and individually), Mute, Chrysalis (excluding the Robbie Williams catalogue) and Ensign would be sold. Included in that disposal would also be the Pink Floyd catalogue and the recently concluded new deal with David Guetta, along with his catalogue. Note that these disposals only relate to exploitation of this repertoire within the EEA.

- EMI Classics and Virgin Classics would also be divested in the EEA.

- EMI's share of the NOW brand and compilation business in the EEA would also be sold. However Universal would keep its share and participation in the Now compilation venture.

- The proposal also includes the divestment of a number of EMI's operating businesses in Continental Europe. Those local operating companies are EMI France, EMI Belgium, EMI Czech Republic, EMI Poland, EMI Portugal, EMI Sweden and EMI Norway.

- Universal is also proposing to divest some its own businesses, principal among which are Sanctuary, Co-Op, and UMG Greece plus several European jazz labels.

- They would also commit to terminate or not to bid for a number of high-profile European licenses for major Anglo-American and domestic repertoire, namely Disney Records, Hollywood Records, Ministry of Sound, and Restos du Coeur in France.

Clearly it's an understatement to say that there are huge implications here for EMI, our staff and most especially, our artists. You will have hundreds of questions, as do we. As this is still a proposal right now, it is difficult for us to answer any of them right now, but over the coming days and weeks, we will be working very hard to address as many of them as possible. We have a lot of time to work through how all of this is going to unfold and how it will affect each of you. So as soon as we are able, we will be working with you to achieve just that.

So what happens next? Obviously the remedy proposal needs to proceed through market testing. That testing should not take long, but a final decision by the EU College of Commissioners will not take place until the second half of September. Of course, regulatory reviews elsewhere - particularly in places such as the United States and Australia - will also need to be completed, as well as a number of practical logistics.

With all that in mind, it's possible that with a wind behind our backs we could close the sale and EMI could pass to UMG as early as the end of September. However I think it is more realistic to plan for a close at the end of October. It is only at that point that any of the disposals could be put up for sale - and even then it will take some additional time for the sale to be completed of any businesses that are being divested. So as I say, we have some considerable time to make plans that take into account the needs of our artists, and in the meantime we will be working as hard as ever to deliver the successful outcomes that our artists so richly deserve.

All of this is a lot to digest, I know. While there is not much more that any of us can say right now, I am sure that you will want to talk to senior management here at EMI, and we will be reaching out directly to as many of you as possible over the coming days and weeks. As soon as I have any more concrete news for you, rest assured that I will contact you all right away.

Best wishes

Roger


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