EMI to bid mainly cash for Warner

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The Independent Online

EMI will this week hold further talks with Warner Music, part of Time Warner, in an attempt to steal a march on its rival BMG in the long-running battle to acquire the American music company.

The British group, which attempted unsuccessfully to merge with Time Warner's music arm in 2000, is planning a takeover bid worth up to $1.5bn (£920m). If successful, the bid would create the world's second biggest music group.

Any offer, which is likely to take some weeks to materialise, would be mainly cash, with the remainder financed by issuing shares to Time Warner. EMI's move on Warner Music comes in a window of opportunity after the termination of exclusive merger talks between Warner Music and the German-owned BMG.

Executives from both companies will meet this week to try to thrash out the terms of any deal, which would depend crucially on regulatory approval. EMI is believed to want control of any combination with Warner Music - in contrast to its attempted move three years ago, which centred on the creation of a 50-50 joint venture.

Meanwhile, talks between Warner Music and BMG, part of Germany's Bertelsmann, are expected to continue into a fifth month of negotiations. The pair were negotiating a 50-50 merger, with a $200m cash sweetener from BMG, but could not agree on how to divide up the key management positions.

Although EMI is understood to favour raising the $1bn-worth of cash from its bankers, rather seek a cash injection from a private equity group, any deal would leave the company financially stretched. It is in the process of raising £600m in bonds and loans, ostensibly to refinance existing debts and strengthen its balance sheet.

A share issue to Time Warner could leave the US group with a stake of up to 25 per cent of EMI, diluting existing shareholders.

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