It's like a scene out of The Graduate.

Media giant Time Warner Inc., left EMI Music Group standing at the altar Thursday to allay the European Commission's concerns over the proposed merger deal with America Online, Inc.

The commission is looking at the maneuvers by Time Warner with great interest, but hold the two merger deals as distinct, and therefore separate, issues.

"Because there were related sectoral elements and competition concerns in both cases, there could be some effect, but the two cases are, in the end, separate," said a source at the European Commission who wished to remain anonymous. "It will be up to the Commission investigators to sort out these issues in the time remaining.

In a joint statement to the media, Time Warner and EMI stated they had ended their accord and were withdrawing their official notification to the European Union's executive branch.

According to Eric Nicoli, EMI chairman, the price for EC approval required the two companies to shed too much of its business. Both had already agreed to lose some of its distribution network and record labels.

"The withdrawal of our application allows additional time to reassess regulators' concerns and to pursue solutions simultaneously in Europe and the U.S.," Nicoli said. "We have been, and will continue to be, flexible in responding to the European Commission's concerns. However, any concessions that are ultimately made must be consistent with our shareholder value objectives."

However, both companies promised to continue discussions to reach a new agreement, which was stymied by the commission's fears about a music conglomerate that would dominate the European markets, an EC statement stated.

"The commission opened an in-depth investigation over concerns that the operation could create a collective dominant position in national European markets for recording music, a single dominant position in national markets for music publishing, and a single dominant position in the markets for online music- and software-based music," the statement read.

The news had a predictable affect on the stock market. EMI stock dropped 2.4 percent this morning after the news was released, while Time Warner stock increased by 3.14 percent.

It's not a bad place for Time Warner to be, stuck between the merger options of two attractive companies; one that would create a music and entertainment empire, and another that would create an Internet and entertainment empire.

AOL obviously had more to offer, with a ready-made worldwide audience of more than 24 million subscribers. According to a first quarter preview announcement by Goldman, Sachs & Company Investments, AOL is on par to acquire 28 million subscribers and has an advertising and e-commerce backlog of $3 billion.

Attractive, indeed.

Time Warner was stuck with an ugly two-front war to merge its company with AOL and with EMI, one the company would likely have lost on both sides if it continued in the same vein. European authorities had already announced its opposition to the $20 billion EMI deal and had made a preliminary decision Sept. 18 to forbid the $135 billion AOL deal, too.

The school bus ride off into the sunset ala Dustin Hoffman may be in the script for AOL and Time Warner, but is by no means certain to make the final draft in this movie adaptation. Although media and financial analysts predict merger approval, the EC has until Oct. 24 to decide on the fate of the AOL/Time Warner merger.


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