The merger of Sony Music Entertainment and Bertelsmann AG has today effectively been censured by a top European court, overturning the European Commission's decision to give it go-ahead two years ago.
The court of first instance has ruled the commission's approval of the 2004 union, which created the world's second largest music company Sony BMG, did not demonstrate the required legal standard and must be re-examined.
Europe's second-highest court decided that the deal had not been placed under sufficient levels of legal scrutiny amid fears that the market could suffer from anti-competitiveness and artificially-high prices for consumers.
Japanese electronic goods giant Sony and German media firm Bertelsmann AG informed the EC that they were planning to merge in January of 2004, with the commission eventually approving the deal in July of the same year.
But six months later, Impala, a collection of independent record labels and production companies, applied to the court of first instance for annulment on the grounds that the creation of Sony BMG was unfairly dominating the market.
Today's ruling heavily criticises the commission for relying on the precedence of past retaliatory measures in its 2004 decision to approve the merger as well as "for having carried out an extremely cursory examination and for having presented in the decision only a few superficial and formal observations on that point".
But the court also criticised Impala, as it deemed the group's attitude was "scarcely compatible with the letter and the spirit of that procedure and slowed down the course of the proceedings". Impala has been ordered to pay one quarter of the costs of the trial.
Sony BMG must now resubmit its merger application to the European Commission, but also has two months to launch an appeal.
"Today's judgment does not affect the validity of the Sony BMG joint venture, which has been up and running since August 2004," the firm said in a statement today.
"We are studying the judgment carefully and shall discuss the appropriate next steps with the European Commission."
The court of the first instance's ruling has also cast serious doubts on the validity of the proposed EMI Warner merger, with both firms having previously announced a willingness to buy into each other.
EMI shares fell 11 per cent following the uncertainty in the light of the European court's decision, with analysts suggesting that this is proof enough that the deal has been scrapped.