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Analysts Say Warner Music Is Likely to Raise Bid for EMI

Warner Music Group is likely to counter a $4.7 billion private equity buyout for long-sought rival EMI Group and turn what looked like a closed deal for the recording company into a new takeover battle, analysts said on Monday.

EMI said on Monday it agreed to the offer from Terra Firma, possibly ending a seven-year standoff with smaller competitor Warner Music. Both firms feared regulators would kill any deal.

Warner Music, the fourth-largest music company, is evaluating its options after Terra Firma offered to pay 2.4 billion pounds ($4.73 billion) or 265 pence a share in cash to buy No. 3 music group EMI, two sources close to the talks told Reuters.

One source said Warner Music, whose acts include Madonna, Red Hot Chili Peppers and Green Day, would consider bidding more than 265 pence per share in the coming weeks. The source said Warner might also wait until Terra Firma was prepared to sell off EMI assets or the company as a whole.

Some investors are already hoping for a new bid from Warner, evidenced by EMI shares trading up nearly 9.3% at 271 pence on Monday, analysts said.

"It's the beginning not the end," said Laura Martin, analyst at Soleil Media Metrics, adding she expected Warner to make a higher bid. "We think it's a good thing for Warner because it gives them a clear price for them now to beat."

Previous deals between New York-based Warner and London-based EMI have been stalled by concern European Commission regulators would not approve the tie-up and the inability of their management teams to agree on terms.

Warner's last official bid for EMI, home to artists including The Beatles, Coldplay and Norah Jones, was in February at 260 pence a share.

Warner had yet to make a new formal bid before EMI accelerated the bidding process in which Terra Firma trumped at least two other proposals from private equity firms that had looked at the company, including Cerberus, One Equity and Fortress, according to sources familiar with the matter.

"We're waiting for the next round. It's getting lofty as most bidding wars do," said Bishop Cheen, analyst at Wachovia Securities.

If Warner were to make a higher bid, at least one analyst believes it could ultimately hurt shareholders. "Warner will now have to pay a really onerous price which we think will be value destructive for its shareholders," said Richard Greenfield of Pali Research. "This has become a lose-lose situation for Warner Music," said Greenfield. "Warner's going to have to sleep (alone) in its own bed," he said.

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