EMI faces battle for Time Warner music arm

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Time Warner is talking to several parties about the sale of its music arm, industry sources in New York confirmed last night.

These include the US media moguls Haim Saban and Edgar Bronfman, who are attempting to put together a private equity deal. Talks are also continuing with EMI, the UK music publisher that wants to merge the Time Warner offshoot with its own recorded music operations.

One source close to the negotiations added that EMI's chairman Eric Nicoli, who has been in New York all this week, was there for talks on the proposed merger, although neither Time Warner nor EMI would say whether any meeting had taken place.

Time Warner and EMI have been in negotiations for six weeks and the EMI camp claimed yesterday that progress had been made.

The talks have been given added urgency by Thursday's announcement that Sony of Japan plans to merge its Sony Music Entertainment division with the recorded music operations of Germany's Bertelsmann in a £5bn tie-up.

The Investec analyst Kingsley Wilson said yesterday: "Time Warner was happy to sit back and run a beauty parade so they could try to force the price up. The Sony-Bertelsmann deal takes the wind out of their sails." The Sony-Bertelsmann talks started more recently but the pair moved much more quickly.

Both tie-ups will need regulatory approval in the US and in Europe. Although Sony and Bertelsmann are ahead at this stage, it is likely that the whole competitive issue will be looked at in one go provided Time Warner makes up its mind within the next few weeks.

EMI, which is likely to offer Time Warner about £600m, believes venture capitalists will offer significantly less because they cannot achieve the same cost savings. However, Jesper Jensen, an analyst at Panmure, said: "Private investors would not be subject to scrutiny by the regulators. It could take up to a year to reach a decision on any deal between the major groups. Does Time Warner want to hang on with all the uncertainty or get cash now?"

Universal Music is the market leader, with just over 25 per cent. Either of the two mergers would create a close rival but it is unlikely that regulators would allow both.

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