EMI closing in on £1bn Warner deal

BRITISH music giant EMI has begun a minute examination of Warner Music's accounts ahead of its imminent £1 billion deal to acquire the company from its parent Time Warner.

EMI will not finalise the details of the financing required for the acquisition until it completes this process, known as due diligence.

The fact that this process is now under way indicates that the deal is reaching its final stages. However, reports in New York last week that it was likely to be concluded within a few days are wide of the mark, say those familiar with the talks.

EMI, home to Robbie Williams and Kylie Minogue, has offered Time Warner £650 million in cash for Warner plus a 25% stake in the merged company which would be worth a further £420 million. The terms are understood to have been agreed by both parties.

The due diligence is complex not least because Warner, which boasts Madonna and REM, has operations in more than 50 countries.

There has been intense interest in how EMI's chairman Eric Nicoli will fund the deal since the music company has debts of £860 million and a stock market valuation of £1.3 billion. It is possible that the company will raise at least part of the money through a rights issue, and borrow the remainder.

EMI has only been able to start due diligence after Time Warner made it clear that rival German firm BMG was out of the picture. BMG, part of the Bertelsmann media group, had previously been in exclusive talks, led by Warner chairman Roger Ames. These lasted more than four months. Nicoli then stepped in to negotiate with Ames's boss, Dick Parsons who is chairman of Time Warner.

Warner, meanwhile, is believed to be in dispute with one of its star acts, Madonna. She is considering legal action against the company over her Maverick record label, a joint venture between the performer and Warner.

Madonna is believed to want to buy Warner's stake in Maverick before Warner is sold. She fears a new owner would not want to invest in the 11-year-old label which includes artists such as Alanis Morissette. Warner would only say: 'We love Madonna.'

Meanwhile, Sony is talking to Bertelsmann about merging its business with BMG. Both EMI/Warner and Sony/BMG will need clearance from the competition authorities in the US and Europe before they can proceed.

A Sony/BMG deal could present the regulators with more problems than EMI/Warner since the combined size of the firms is bigger.