Inquiry after bid talk sends EMI higher

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The Financial Services Authority was last night thought to be investigating a surge in EMI shares, sparked by rumours that a bid will soon be tabled. The shares jumped 10 per cent to 242p, the biggest improvement by any FTSE 250 company, as speculation flew around the City that predators are circling the music group.

More than 44 million EMI shares changed hands in heavy trading - three times the usual volume. It was said EMI may soon attract a 300p-a-share offer from the US music giant Warner Music or an unnamed private-equity firm, valuing it at £2.4bn.

Analysts reckon any venture capitalist would be most interested in EMI's extensive back catalogue, which includes recordings by Robbie Williams and the Rolling Stones, against which they could raise cash. A tie-up with Warner would reap substantial cost savings. In August, Credit Suisse First Boston estimated those savings could be worth £75m per year and predicted the pair would talk about a merger within 12 months.

But others suggested the rumours may have been started by hedge funds holding stakes in the music group who are looking to make a quick buck. They expected EMI shares to fall back sharply this morning.

The FSA is responsible for maintaining confidence in financial markets and promoting good order. It keeps an eye out for unusual share price movements or trading patterns, and ensures price-sensitive information is disclosed. The regulator was expected to contact the Swiss investment bank UBS, EMI's financial adviser, to see whether there was any substance to the rumours. The FSA and EMI declined to comment.