Universal Music's £1.2bn acquisition of EMI could be heading into regulatory trouble in the US, after the head of the Senate's anti-trust panel warned the Federal Trade Commission that the deal posed significant competition issues.
Senators Herb Kohl and Mike Lee, the chairman and ranking member of the Senate antitrust subcommittee respectively, have written a six-page letter to FTC chairman Jon Leibowitz urging him to closely scrutinise the deal to see if it will substantially injure competition in violation of anti-trust laws.
The letter raises several concerns, including that the new combined company could threaten the development of new digital music services and that CD prices could rise.
"We believe this proposed acquisition presents significant competition issues significant competition issues that merit careful FTC review to ensure that the transaction is not likely to cause substantial harm to competition in the affected markets," the letter says.
The senators – fresh from a hearing in July that grilled music industry leaders about the deal, including Universal Music chief Lucian Grainge – say that the letter is a summary of the findings of the sub-committee's investigation, not a judgment on whether the deal breaks competition law.
"The effect of the proposed acquisition on digital distribution of music, and particularly on the ability of new entrants to launch new services, is particularly critical to determining whether the acquisition will have any substantial anti-competitive effects," the letter says.
The concerns of the US sub-committee echo those raised by the European regulator in a 200-page statement of objections delivered to Universal Music in July.
Those European Commission objections forced Universal Music, which had been bullish about driving the deal through with few concessions, to rethink its strategy and offer to sell more EMI assets: including Parlophone, but minus the Beatles; Mute; and Chrysalis, excluding Robbie Williams.
Observing the concessions being offered by Universal Music in Europe, the US body for independent music companies, A2IM, has called for a similar sell-off of assets in North America.
The music giant is under immense pressure as it has guaranteed to pay EMI's owner Citibank the entire £1.2bn by the middle of September regardless of whether the deal goes through.
Universal, which is owned by Vivendi, has been given until the end of November to push the deal through.
Universal Music spokesman Peter Lofrumento said that the company always expected a thorough review of the deal but remained confident of gaining regulatory approval.
"Since our proposed acquisition was announced, we have expected a thorough and rigorous review of UMG's acquisition of EMI from regulators in the United States," he said.
"We appreciate the points raised in the joint letter from chairman Kohl and ranking member Lee, as well as the committee's recognition of the historic changes in the music industry over the past decade."
Lofrumento said that Universal Music had been working with the FTC to address a range of issues, and that it was supportive of new digital services.
"Since this deal was announced, we have worked closely with the Federal Trade Commission to address many of these issues, and will continue to do so," he said.
"Our investment in EMI will create more opportunities for new and established artists, expand music output and consumer choice, and support new digital services. We remain confident of regulatory approval."
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