Slaughters defies the odds on BMG-Sony Music tie-up

Slaughter and May’s competition practice has secured a surprise European Commission clearance for the merger between client Bertelsmann Music Group (BMG) and Sony Music.

European Commissioner Mario Monti’s decision signals an about-turn on previous rulings, including the blocked merger of BMG’s media rivals Warner Music and EMI in 2000, advised by Herbert Smith and Freshfields Bruckhaus Deringer respectively. Sources said the BMG-Sony merger was cleared because, since the Commission turned down EMI-Time Warner, the rise of piracy has made the music sector a significantly tougher market.

The sources added that when Monti formally clears the merger in a few weeks, one of his key reasons will be that there is little evidence it would have led to “tacit collusion” between the music companies.
The Commission has been able to process the merger quickly because in April it temporarily suspended its investigation into the $9.4bn (£5.19bn) hostile takeover by the world’s second-largest software group Oracle of US software business publisher PeopleSoft, freeing up resources.

The Sony-BMG merger is the only high-profile in-depth second-phase investigation to be concluded since the Commission appointed chief economist Lar-Hendrik Roeller last June and launched peer review panels a little earlier.

A well-placed source said the institutional changes helped to clear the BMG-Sony merger. “The new systems of checks and balances in the form of the peer review panel and the chief economist played an important role in this case. Without this, the case may have been rejected,” said the source.

But another source pointed to a European Court of Justice decision to overrule the Commission’s blocking of the Tetra Laval-Sidel, Schneider-Legrand and Airtours-First Choice mergers as the deciding factor. A source said: “Somebody had at last taken the Commission to court, so if it wants to block a merger it has a much bigger burden of proof.”

The Slaughters team was led by London-based competition partner Philippe Chappatte with assistance from competition partner John Boyce in Brussels. Sony was advised by Nick Levy of Cleary Gottlieb Steen & Hamilton.