British music company EMI agreed to a 2.4 billion pounds ($4.73 billion) cash takeover from private equity group Terra Firma on Monday in what could be a final snub to long-term suitor and rival Warner Music Group.
The offer of 265 pence a share sent EMI's stock up to close 9.3% higher at 271 pence, indicating investors thought a higher counterbid was possible.
A source familiar with the deal told Reuters that Terra Firma intended to keep EMI intact, retain existing management and proceed with plans to securitize the company's reliable music publishing assets.
Terra Firma said that including debt the deal put a value of 3.2 billion pounds on EMI, home to artists including Kylie Minogue and Norah Jones. The agreement also includes a so-called break fee of 24 million pounds if EMI pulls out.
If accepted by shareholders, the deal would bring an end to the seven-year standoff between the world's third largest music company, EMI, and the number-four, New York-based Warner.
The two groups have tried to combine on numerous occasions but any deal may have struggled for regulatory approval as another merger, Sony/BMG, is still being examined by the European Commission.
Warner declined to comment on Monday.
"The EMI board received a number of proposals from several different parties," Chairman John Gildersleeve said.
"Terra Firma's offer is the most attractive proposal received and delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company."
Terra Firma Chief Executive Guy Hands said the priority was to develop EMI's digital and online strategy.
Sources familiar with the situation had previously told Reuters that EMI had opened its books in recent weeks to Warner and three other private equity groups.
Details of Terra Firma's strategic plans will also be a blow to Warner as it had been thought that any private equity buyer might only keep the cash-generative music publishing arm and sell the struggling recorded music division to Warner.
"Terra Firma sees significant opportunity on both sides of the business," said the source, who requested anonymity.
"It believes in the digital growth opportunity in the music market, in general, and so the expectation is that the business will be held together."
British-based EMI also released full-year results, showing a 61% fall in underlying profit before tax to 62.7 million pounds in the year to end-March, due to worsening market conditions. Underlying group revenue fell by 16% on a reported basis and by 12% at constant currency.
Revenue from its recorded music unit fell by 15% at constant currency, while it said the EMI publishing unit outperformed the recorded music market with revenue declining by only 0.9%.
EMI was advised by Greenhill, Citigroup and Deutsche Bank while Terra Firma was advised by Dresdner Kleinwort. Citigroup is arranging debt for the acquisition.