EMI circling as Warner D-Day looms

MUSIC group EMI is poised to make an offer of £600m for Warner Music if the American group fails to agree merger terms with Germany's BMG by Monday.

A three-month exclusivity agreement between Warner, home to Madonna, and BMG, which has Christina Aguilera on its books, covered their attempt to create a 50:50 joint venture. That period ends on Monday, allowing both sides to talk to other potential merger partners.

Negotiations have stalled over disagreements on the valuation of the new business as well as its management structure.

Senior executives from both companies and their parent businesses - AOL Time Warner and Bertelsmann - met in London last week in a final attempt to create the second biggest music company in the world behind Universal of America.

By joining forces, Warner and BMG aim to counter the global downturn in music sales as well as make cost savings of up to £200m between them.

After the meeting, AOL's head of entertainment, Jeff Bewkes, and Bertelsmann's finance chief Siegfried Luther are understood to have decided to make a last-ditch effort to go ahead with the deal.

Nevertheless, EMI, whose artists include Robbie Williams and the Rolling Stones, is preparing to step in with a cash and shares offer as soon as the exclusivity agreement lapses.

BMG is seen as the driving force behind the proposed merger with Warner. It suffered a setback last week, however, when Bertelsmann said BMG had made an £80m loss in the first-half of the year, though the company said it was confident of a full-year operating profit.

However, an industry source said: 'The question AOL shareholders ought to be asking of their board is why Warner Music is spending three-and-a-half months trying to attach itself to the worst of the major music companies?'

EMI raised about £150m in a bond issue last week, which some analysts saw as a sign it was sorting out its finances ahead of a bid.