The new music giant, Warner EMI Music, will bring together a star-studded roster of artists and catalogues in a 50-50 joint venture, from Warner's Madonna, Eric Clapton and Phil Collins and EMI's Spice Girls, Beatles and Garth Brooks. The US Group, which earlier this month announced it was merging with Internet powerhouse America Online Inc, will have management control of the new combine which will have a global market share of around 20 per cent. In compensation, EMI shareholders will be offered 100 pence per share in cash at a cost of $1.3 billion to Time Warner.

Roger Ames, Warner Music's chairman, will head the new Warner-EMI venture as chief executive with Time Warner President Richard Parsons and EMI chairman Eric Nicoli as co-chairmen. Coming hard on the heels of Time Warner's planto merge with AOL, the EMI tie-up will catapult the $160 billion media giant into the number one slot for music distribution on the Internet. The deal still needs both regulatory and shareholder approval.

"These two music companies in themselves will be the premier music company in the world but the affiliation with AOL and Time Warner will supercharge the entire proposition," Parsons told reporters. But the jury remains out as to whether shareholders will be convinced by the deal's complex structure and the limited 100 pence a share upfront payout.

While EMI shares jumped to a high of 810 pence when the deal was first unveiled, they swiftly retreated to stand nine percent up at 705 by 1110 GMT and fund managers speculated that Time Warner may have to revise the terms of the deal. "I think EMI shareholders are likely to be underwhelmed by this. EMI shareholders wanted a full takeout and a 50-50 joint venture with Time Warner holding a golden share is not what they anticipated," Jeremy Batstone of NatWestStockbrokers told Reuters Television.

Under the deal, Time Warner will have six seats and EMI will hold five seats on an 11-member board. Warner also has the right to acquire 8 per cent of EMI Plc if the latter's share price reaches nine pounds within the first 3-1/2 years following completion. "This is certainly not the knock-out deal shareholders would have been looking for given that EMI is such a unique asset. There could be some feet dragging on voting this one through and they may have to provide a sweetener," said one fund manager.

Some analysts speculated that Warner's move on EMI-a perennial target of takeover speculation-may yet be challenged by rivals.

"I think we will see a third party coming in to the deal," said Lorna Tilbian, media analyst at WestLB Panmure. "Once the regulatory constraints are addressed it will give a third party a chance. It could be one of the US Majors that lack music-Disney Corp or News Corp-it could be Yahoo!."

However, EMI chairman Eric Nicoli played down theidea, saying he had received no bid approaches, while Germany's Bertelsmann AG declared it had no intention of launching a counter-bid. Some analysts added that few of the speculated potential bidders, which also included Sony Corp's Sony Music, would want to take on Time Warner.

Eurostocks gain from move
European shares added to early gains by midsession on Monday, helped by news that EMI Group will merge its music business with Time Warner to create the world's biggest music group with Internet access. EMI shares were up 8.80 per cent, having gained about 20 per cent on the opening, after it confirmed weekend reports about the merger. Only two weeks ago Time Warner and Internet giant America Online announced plans to merge. By midday though, BSkyB had made the biggest move of the European blue chips gaining 10.92 per cent to lead media shares into outperformance. "What we are getting is these intermittent localised areas of interest but what still concerns us is the big picture about valuationlevels and interest rates," said David Thwaites, European strategist at BNP in London.