The European Commission is planning to open a “full-scale” investigation into Universal Music Group‘s proposed acquisition of Downtown Music Holdings.
That’s according to a report published by Reuters this morning (July 16), citing “three people with direct knowledge of the matter”.
UMG’s Virgin Music Group revealed in December that it had agreed to buy Downtown Music Holdings LLC in a $775 million deal.
The EC announced in April that it was preparing to investigate the proposed acquisition.
Last month, after UMG formally notified it of the deal, the EC set a provisional deadline of July 22 (Tuesday next week) to make a decision in an initial Phase 1 investigation.
If competition concerns were identified during this initial 25-day Phase 1 review of the proposed deal, the case could progress to a more extensive Phase II investigation lasting up to 90 working days, which is what Reuters‘ report appears to suggest will happen.
In a statement issued to Music Business Worldwide in response to the Reuters report, a Universal spokesperson said: “Given that the European Commission has not announced a decision, we are unable to comment.”
“Our initial projected timeframe for the completion of the transaction remains unchanged.”
Universal Music Group
They added: “We do, however, remain confident that the combination of Virgin and Downtown will create an improved offering in the growing and highly competitive label services category that today consists of roughly 100 companies, one that will provide a wide range of services to help independent artists, labels and entrepreneurs achieve their commercial and creative goals.
“We look forward to continuing to work closely and constructively with the Commission to convey the benefits this transaction will bring to the independent community, as well as to address the wilful misrepresentation of market data by self-interested parties who represent a tiny fraction of the thousands of independent labels that make up the broader independent community globally.
“Our initial projected timeframe for the completion of the transaction remains unchanged.”
As previously reported by MBW, the UMG-Downtown deal did not meet the EU’s standard turnover thresholds that would typically require notification to Brussels, but it did trigger notification requirements in both the Netherlands and Austria based on their respective national thresholds.
The EC decided to look into the deal because the Netherlands triggered a legal mechanism in EU competition law called Article 22. Austria subsequently joined the referral.
The European Commission describes a Phase II investigation as “an in-depth analysis of the merger’s effects on competition.” A Phase II investigation is opened “when the case cannot be resolved in Phase I”.
The EC explains on its website that “from the opening of a Phase II investigation, the Commission has 90 working days to make a final decision on the compatibility of the planned transaction with the EU Merger Regulation” and that “extensions of either 15 or 20 working days can be granted”.
If the EC does announce that it has decided to launch a Phase II investigation into the deal, that 90-day deadline means that it will have until around November 22 to make its decision unless a 15 or 20-day extension is granted.
According to European Commission statistics, “more than 90% of all cases are resolved in Phase I, generally without remedies,” which implies that less than 10% of cases proceed to Phase II.
At the conclusion, the Commission can either clear the merger (with or without conditions), or prohibit it entirely if competition concerns cannot be adequately addressed.
As the investigation continues behind closed doors in Europe, the global music industry debate about the deal’s implications has been getting louder.
Earlier this month, Virgin Music Group’s bosses slammed what they called “juvenile and offensive falsehoods” spread by opponents of VMG’s planned Downtown acquisition.
Last week, over 200 people signed a letter objecting to UMG’s proposed takeover of Downtown, including 20 employees from Beggars Group and Secretly Group companies.
On July 2, the European Composer & Songwriter Alliance (ECSA) issued an open letter to the European Commission on Wednesday (July 2) urging it to block the planned acquisition.Music Business Worldwide
