BRUSSELS, BELGIUM (Reuters) — Internet giant America Online Inc. won European approval today for its $129 billion takeover of Time Warner Inc. after agreeing to sever all links with Germany's Bertelsmann AG.
The European Commission said the companies' concessions and last week's withdrawal of the planned music joint venture of Warner Music and EMI Group had reassured it that the new group would not be able to dominate the emerging market for online music.
Bertelsmann is owner of BMG music, one of the world's five "major" record labels, along with EMI, Warner Music, Seagram's Universal Music, and Sony Music.
Because of its links with Bertelsmann, AOL-Time Warner would have had preferred access to Bertelsmann's music library, giving it control over the leading source of music publishing rights in Europe, the commission said.
"In a music market already characterized by a high degree of consolidation, the danger, which has been averted, was that, by allowing AOL to team up effectively with three of the five music majors, the resulting integrated company could have dominated the online music distribution market and music players," EU Competition Commissioner Mario Monti said in a statement.
Under the agreement, Bertelsmann will progressively withdraw from the AOL Europe joint venture and will also pull out of the French joint venture AOL CompuServe, in which Vivendi subsidiaries Cegetel and Canal Plus are also involved.
The Commission is due to rule on the rival merger of Vivendi with Canada's Seagram on Friday and is expected to take a close look at the remaining link between Vivendi and AOL in France.
Monti's spokeswoman, Amelia Torres, said that AOL and Time Warner had offered to resolve the problems caused by their link to Bertelsmann during the commission's initial one-month probe of the deal.
But she said that guarantees given at the time were insufficient to satisfy the commission, particularly given the obvious links with the planned EMI/Warner Music venture.
That deal was abandoned last Thursday and this, plus the end of the link with Bertelsmann, addressed the commission's remaining competition concerns:
"With Europe's largest media company [Bertelsmann], particularly its leading music unit, BMG, free to compete alone, the commission concluded that AOL-Time Warner would not have the critical mass in terms of music publishing rights to dominate the market."
For its part, Bertelsmann declined to comment on the European Commission's decision, saying it was not involved in the case.
Bertelsmann said in March that it would sell its 50 percent stake in its AOL Europe joint venture and divest its holdings in the French joint venture AOL CompuServe.
Bertelsmann's forced withdrawal from the venture in the wake of the AOL-Time Warner deal has focused attention on potential acquisition targets in Europe and the United States.
The cash-rich group, which has some 30 billion marks ($13.38 billion) to spend, has made no secret of its ambitions to expand in both e-commerce and providing online content.
Press reports earlier this month suggested that Bertelsmann was assessing the possibilities of its BMG music business combining with EMI, after EMI and Warner Music withdrew their own merger plan to create the world's largest music business in the face of EC regulatory objections.