Vivendi's Universal Music Group won European and U.S. approval for its $1.9 billion (1.1 billion pounds) purchase of EMI's recorded music business on Friday, with the EU requiring the company to sell labels that account for about a third of the British company's revenues.
The U.S. Federal Trade Commission approved the transaction without conditions. With the regulatory approvals, the companies are now free to close the deal.
Universal said on Friday it would sell some of EMI's most prized assets, such as the Parlophone label - home to star acts such as Coldplay and Queen - in a move which some analysts said significantly reduced the attractiveness of the deal.
"The whole point of the deal was the back catalogue and getting EMI's artists. But when you look at the bands they had to give away, they are some of their best ones," said Conor O'Shea, analyst at Kepler Capital Markets.
Nonetheless, the deal cements Universal's No.1 position in the European music industry, with a vast library of current top-selling and legendary names including Jay-Z, Kanye West, Katy Perry, Robbie Williams, Pink Floyd and The Beatles.
"We are delighted Universal Music will retain over two-thirds of EMI on a global basis, contributing to the accretive nature of the deal," the company said in a statement following the European approval.
Some analysts said the sale of assets equivalent to around 30 percent of EMI's group revenues, or roughly 10 percent of sales for the combined group, could raise as much as $750 million and help Vivendi reduce its debt.
However, a source close to the deal put the value of the assets to be divested at about $350 million. The source did not want to be named to protect a business relationship.
The European Commission, which had raised concerns over the potential market power of the combined group, said the sales would have to be completed in six months.
EMI is being sold by Citigroup Inc, which took control of it after its previous owner, Guy Hands' buyout shop Terra Firma, defaulted on loans owed to the investment bank. The bank cleared out the debt, broke the company in two and announced sale of the parts last November.
Universal is buying EMI Recorded Music while Sony snapped up EMI Music Publishing, the portion of the company that handles copyrights to 1.3 million songs, for $2.2 billion.
Critics had said the deal raised substantial concerns because it would reduce the number of major music companies to three from four, and would give Universal life-or-death power over digital entrants that rely upon being able to license music.
Rivals Warner Music Group and BMG - which is owned by German media group Bertelsmann and private equity group KKR - are expected to have the edge in acquiring the assets because of their financial resources and music expertise.
A source familiar with Warner's thinking said the European Commission told Universal it would have to sell at least two-thirds of the package to a single buyer.
Warner is the world's third-biggest recorded music company, behind global No.1 Universal and second-place Sony.
The EU watchdog said buyers must be active record firms or those with a proven track record in the music industry, ensuring there would be a strong rival to Universal.
Virgin founder Richard Branson and Sony Music are among those eyeing the assets, sources have told Reuters.
Goldman Sachs and BAML are advising Vivendi on the disposals.
"These divestitures may lower the future value of synergies, but also reduce the net financial commitment in 2012, when group debt is under scrutiny by rating agencies. So Vivendi may not be so unhappy, after all, from having to give up these assets," said Bernstein analyst Claudio Aspesi.
On the block will be the Mute, Ensign and Chrysalis labels, EMI Classics, Virgin Classics, EMI's share of the "NOW! That's what I call music" compilation business, and EMI units in France, Spain, Belgium, Denmark, the Czech Republic, Poland, Portugal, Sweden and Norway.
In addition, Universal will sell its brands Sanctuary, Co-Op Music Ltd, King Island Roxystar, MPS Records, its share in Jazzland, and its Greek unit.
The company also pledged not to include "most favoured nation" clauses in deals with digital customers for 10 years. Such clauses bar its customers from offering more favourable terms to rivals.
"The very significant commitments proposed by Universal will ensure that competition in the music industry is preserved and that European consumers continue to enjoy all its benefits," EU Competition Commissioner Joaquin Almunia said in a statement.
The combined Universal/EMI will have a market share below 40 percent in Europe after the asset sales, a threshold which typically prompts regulatory concerns.
(Additional reporting by Leila Abboud in Paris and Sophie Sassard in London; Editing by Rex Merrifield, Mark Potter, Bernadette Baum and Phil Berlowitz)