MUMBAI: Music giants Sony Music and BMG who had announced their merger plans last month, signed the dotted line on Friday, 12 December in a final agreement to combine their music groups. The combined operation will be called Sony BMG.
The deal however hinges on approval from European and US regulators. According to a report in The Associated Press, the financial terms of the deal were not disclosed.
The combination of Sony Music (No.2 in the world) and Bertelsmann's BMG (No.5) will have 25.2 percent of the global market, still trailing the leader, Universal Music Group of Vivendi Universal. The roster of stars from the two companies includes Bruce Springsteen, Celine Dion and Christina Aguilera.
"Sony and Bertelsmann share the vision that this merger is the basis for a company that will concentrate on the creative key business," said Bertelsmann head Gunter Thielen in a statement. "Our music business plays a key role for Bertelsmann and we believe in its future."
The world's five top music companies have tried numerous combinations since 2000, including a merger of BMG with EMI Group and a merger of EMI with Time Warner, before Time Warner's merger with America Online. But both were abandoned because of regulatory concerns.
Sony and Bertelsmann are hoping that regulators will review their merger in light of the industry's three-year sales slump and the spread of music piracy
"There is an antitrust issue," said Mark Jones, a partner at the law firm Norton Rose in London, told Bloomberg News. "They have a reasonable prospect of clearance" because of the industry woes.
Indeed, both companies have felt growing pressure in recent months to merge so that they could cut costs as losses have mounted. BMG reported an operating loss of $126 million in the first half; nearly triple its loss in the period a year earlier. Sony Music said it had an operating profit of $2 million in the second quarter that ended in September, but sales were down 8.9 percent, to $1.1 billion, from 2002.
While merging the music businesses is unlikely to provide an immediate fix to their sales problems, or piracy for that matter, the combined companies would be able to reduce costs sharply by combining back-office functions.
The rush by Sony and Bertelsmann to announce their nonbinding deal helped derail another attempt at a music merger between Time Warner and EMI. Time Warner scrapped its deal with EMI because of worries that regulators would not approve both deals. Instead, Time Warner sold its music business for $2.6 billion to Edgar Bronfman Jr. and a consortium of investors led by Thomas H.Lee Partners.

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Sony, Bertlesmann plan merger to cut losses