EMI in last-ditch effort to acquire Warner Music

EMI, the record company that failed to merge with the music interests of Time Warner in 2000, is making an eleventh-hour bid to scupper Time Warner's merger talks with its rival BMG.

The UK group is understood to have seized an opportunity to restart discussions with Time Warner, when a period of exclusivity in the talks with BMG expired at the start of this week.

Sources said that while Time Warner continues to progress its talks with German-owned BMG, which have been going on for about six months, the US giant "is now opening the door to explore its options with other interested parties".

One insider said: "There is a small window of opportunity for EMI. They have to use it but it's very tiny. There is a gap between Time Warner and BMG but they are pretty close [to agreeing terms]."

Warner Music and BMG, part of Germany's Bertelsmann, are negotiating what is believed to be a 50/50 merger. The parties are still haggling over a relatively small cash injection being asked of BMG and the distribution and functions of the management positions in a merged company.

EMI is believed to want control of any combination with Warner Music but, in return, is willing to offer more than $1bn (£615m) in cash.

The British company is currently raising £600m in bonds and loans, ostensibly to refinance existing debts and strengthen its balance sheet, but the effort has sparked speculation it is readying itself for a renewed offer for Time Warner's music interests.

Analysts worry that a Time Warner-BMG combination will leave EMI as a distant third in an industry that needs to cut costs to compensate for declining CD sales.

BMG, EMI and Warner Music each have between 11 and 12 per cent of the global recorded music market, behind the sector leader Universal Music, which has 26 per cent.

EMI is wary of being used as a pawn by Time Warner in an attempt to wring concessions out of BMG. The chairman, Eric Nicoli, is also concerned about being drawn into a process which could once again end in the deal being blocked by competition authorities.

Analysts at Bear Stearns yesterday stoked stock market enthusiasm for an EMI bid for Warner Music, saying the British company could generate up to £200m in annual cost savings from a deal. EMI shares were up 6.25p at 158.25p.

EMI has also been considering a deal with BMG, which wooed the company in 2000 after the EMI-Time Warner merger collapsed.

Whether any of these deals will be allowed by regulators remains very uncertain. Some observers are sceptical that the competitive landscape has really been changed that much since 2000 by the rapid decline in global CD sales. Competition authorities may argue that the decline is less the result of music piracy than as a result of poor music signings which have left the major labels with few artists who have mass appeal.