Tim Arango

Despite initial optimism that last week's European court decision overturning the 2004 SonyBMG merger was merely a technicality, executives at EMI and Warner are likely to put their merger plans on ice for as long as a year, according to sources familiar with the matter.
Even as the ink was barely dry on last week's ruling, EMI Chairman Eric Nicoli told reporters after the company's annual meeting that he still believed a combination of EMI and Warner Music could pass regulatory muster.

According to Bloomberg News, Nicoli reiterated that EMI believed it could get regulatory approval for a deal to merge with Warner, saying, "There's no reason at this stage to change that view."

Nicoli's initial optimism last week came as Hogan & Hartson, a law firm that is advising EMI on U.S. regulatory issues related to a potential acquisition of Warner, put the court ruling as the first item in its daily newsletter.

The law firm quoted the Financial Times in saying the decision "raised serious doubts about the viability of any merger between other recorded music companies such as the UK-based EMI and the U.S.-based Warner Music..." (Hogan & Hartson is also outside counsel for The Post.)

Yet in the days since last Thursday's court ruling - a time that has allowed both sides' lawyers to digest the ruling - Nicoli and those close to him have realized that a deal anytime soon is farfetched, according to sources.

Sources close to both sides say they won't persist in their talks until the regulatory situation at SonyBMG is resolved - something that could take up to a year.

The scotched merger plans have sent shares in both companies plummeting: since their close last Wednesday, the day before the ruling, Warner's shares have plunged some 16 percent, while EMI stock is down about 12.7 percent.

Yesterday, EMI closed down 4 percent at 267 pence, while Warner dropped 94 cents, or 3.6 percent, to close at $24.98.