Apple in talks to buy Universal Music for $6bn

Apple computers was said yesterday to be in secret talks to buy Vivendi Universal's music interests, with a report suggesting the computer group intends to make a formal bid later this month.

Reports of the approach triggered a flurry of activity on Wall Street yesterday, with both companies' shares losing value because of investor worries about the viability of the deal.

The news first emerged in a detailed report in the Los Angeles Times, which said Apple's chief executive, Steve Jobs, had been approached by Vivendi in December and that the two sides had conducted several rounds of talks since.

Apple is looking for a way to boost its profile following two straight quarters of financial losses and a perception that its hold on the computer market – it enjoys only about 3 per cent of all desktop sales – has become increasingly marginal.

Vivendi, meanwhile, is looking for ways to raise about $7bn (£4.5bn) to ease its debt burden and has openly courted buyers for its Universal Music Group, the largest single entity in the entire music industry, as well as the rest of its entertainment assets.

According to the LA Times, Apple is planning to make a formal bid for UMG at Vivendi's 20 April board meeting. It could offer as much as $6bn.

Key to the deal, it appears, is a new device due to be launched by Apple later this month that promises to make downloading music off the internet as easy as buying books from Amazon.com. Mr Jobs, who is familiar with the entertainment business through his digital animation company Pixar, appears to believe that a viable business model for online music is around the corner.

That faith appears to be meeting some scepticism. The music industry has been struggling with red ink, dwindling sales and the unanswered conundrum of online piracy, with no obvious way yet apparent to prevent illegal free downloading.

UMG, which includes such labels as Interscope – Eminem's publisher – and MCA Records, saw operating profits slide 23 per cent to $510m last year. There has been a shakeout of senior management recently, with more changes expected if finances are not improved.

Any possible sale of UMG to Apple is complicated by another possible bid for Vivendi's entertainment assets by Marvin Davis. The oil tycoon has offered $13bn for a 65 per cent stake of the whole Universal platter, but yesterday a source quoted by the news agency Reuters suggested that offer might be withdrawn if Apple enters the picture. "The Davis proposal has always been for all the entertainment assets, and the music group is essential," the Reuters source said. "The transaction doesn't make sense without it."

Lorna Tilbian, media analyst at Numis Securities, said: "I'd be surprised if this happened. Vivendi did this big bond issue recently and it was said that one of the reasons it did so well was the music business cash flows."