EMI shares soared nearly 20 per cent to 706.7p on the news as analysts looked forward to a possible auction for the last independent major music group. Other potential bidders could include American groups Disney, Viacom and Dreamworks, Bertelsmann of German, Sony of Japan and Kirk Kerkorian, the American buyout specialist who once made an aborted offer for Chrysler the American car giant. Mr Kerkorian has expressed an interest in EMI but it is understood that he has not yet made an offer.
EMI did not disclose the identity of the suitor in its statement to the stock exchange only saying that it had received an offer that could lead to a bid. However internal e-mails sent to EMI staff included more detail. One said: "As you may now be aware, EMI has received an approach about a possible offer for the company from Seagram - owner of Universal. It is in no way clear that the purchase will go through. As we receive more information we will keep you informed."
A memo sent later said simply: "Seagram 580p bid. Advise to hold on as more suitors are coming to the ball."
On the possibility of a bid battle one analyst said: "EMI has rarity value and it is a trophy asset. People go all starry-eyed when it comes to music and film companies."
Anthony de Larrinagha, media analyst at Panmure Gordon added: "The fit would certainly be best with Seagram. EMI is strong in emerging markets and Europe. Seagram is strong in America where EMI is weak."
Analysts see Seagram as the bidder most that could derive the best synergies from a deal with EMI. In addition to its drinks division which controls brands like Chivas Regal and Glenlivet, Seagram also owns Universal, the former MCA business whose roster of acts includes Counting Crows and Mary J Blige. It would be able to wring out cost benefits from combining its distribution arms whilst improving its geographic spread.
Some analysts said a bid battle could force the take-out price as high as 750p. However others said some US rivals might not cherish the prospect of a battle with Seagram. It is understood that Ed Eisner, chief executive office of the Walt Disney Corporation, ruled out a bid for EMI at a briefing in Florida only a few weeks ago.
The other major music groups such as Sony and Bertlesmann might face competition problems if they were to bid. Viacom, the MTV and Paramount media empire has heavy debts and is looking to make disposals including the Simon & Schuster book publishing division and Blockbuster Video.
There has been speculation about a possible bid for EMI since Sir Colin Southgate, the group's chairman flew to the United States last week. Some music industry sources even said he had made the flight in the private jet of Ed Bronfman, Seagram's chief executive officer.
Sir Colin is back in London this week as is Mr Bronfman who has been visiting Segram's UK operations. He gave a presentation to staff at its London office at The Ark in Hammersmith on Tuesday but is expected to return to Canada by the weekend.
EMI's investors have been bruised by the under-performance of the company which de-merged from the Thorn rentals business in August 1996. It has been hit by the slowdown in global CD sales and the impact of the Asian crisis and full year profits next month are expected to be down from pounds 380m to pounds 312m.
One senior fund manager at one of EMI's largest institutional shareholders said: "EMI is a deal waiting to happen. I think the ground has been well prepared for this with the various management changes over the last couple of months. It means the deal would be less likely to founder on the personality clashes which have affected other deals (such as the failed Glaxo-SmithKline merger).
EMI's management has been in a state of turmoil since plans for an orderly handover of control from Sir Colin Southgate collapsed into disarray. Sir Colin had been keen to spend less time at EMI following his appointment as chairman of the Royal Opera House. But the promotion of Jim Fifield, the head of EMI Music to the chief executive position was blocked by the non-executives. Mr Fifield, known as "Lucky Jim" because of his high pay then left with a pay-off of pounds 12m.
EMI Group traces its roots back over a century to the birth of recorded music and has produced a host of famous artists stretching from Dame Nellie Melba to the Spice Girls. Its current roster includes Garth Brooks and Tina Turner plus classical artists Roberto Alagna and Vanessa-Mae. EMI also continues to cash in on the recordings of the Beatles who they first rejected but then signed in 1962.
EMI has its origins in The Gramophone Company, set up in London in 1897 by William Barry Owen, as associate of Emile Berliner, the inventor of the gramophone. Two years later the company bought Francis Barraud's now famous painting of black and white fox terrier Nipper listening to the horn of a gramophone. The "His Master's Voice" image and title became the company's trademark.