UPDATE: EU Opens In-Depth Investigation Into Universal Buy Of EMI

The European Commission's antitrust arm will look in detail at the proposed acquisition by Vivendi SA's (VIVEF, VIV.FR) Universal Music Group of EMI's recorded music business, under the second phase of its merger review process, it said Friday.

"The commission's initial market investigation indicated that the proposed transaction may raise competition concerns in the wholesale of physical and digital recorded music in numerous member states as well as in the European Economic Area as a whole, particularly in light of the merged entity's high market shares and increased market power," the commission said.

Universal, in a statement issued soon after the investigation announcement, said that "Phase II was always expected; we recognise that the Commission needs time to fully review this transaction" and pledged to "continue to co-operate fully with them and look forward to a successful resolution of the process."

The commission's competition arm now has 90 working days, until Aug. 8, to look into the planned $1.9 billion transaction, which would create a new entity with control of roughly 40% of the global recorded music market, according to some estimates. EMI is home to stars including Blur, Iron Maiden, The Beatles and Katy Perry.

The commission's vice president in charge of competition policy, Joaquin Almunia, said: "The proposed acquisition could reduce competition in the recorded music market to the detriment of European consumers. The commission needs to make sure that consumers continue to have access to a wide variety of music in different physical and digital formats at competitive conditions."

It can decide to allow the deal to go ahead, ask for Vivendi to make concessions such as disposals, or block it completely, as it did recently with Deutsche Boerse (DBOEF, DB1.XE) and NYSE Euronext's (NYX) proposed merger.

The initial investigation has already led those opposed to voice their concerns and lobby the commission.

Edgar Bronfman Jr., on his final day as chairman of Warner Music Group in January, said the deal is "problematic" and that "Warner is going to fight this tooth and nail." IMPALA, which represents independent music labels, has said it wants an "outright no" to the proposed tie-up, which would push up music prices.

Citigroup Inc. (C) agreed to split up and sell the legendary U.K. music company in November, having previously seized the company from former owner Terra Firma Capital. In a separate deal, it will sell the music publishing business to a consortium led by rival Sony/ATV for $2.2 billion.

-By Frances Robinson and Matina Stevis, Dow Jones Newswires; [phone]; [e-mail]