A merger between EMI and Bertelsmann would create one of the largest music empires in the world.

Bertelsmann has stars such as Whitney Houston and Puff Daddy on its books.

EMI and Bertelsmann Music Group would make a formidable partnership

EMI has been the subject of intense merger speculation following a slump in its profits and share price and uncertainty over the future management of the group.

The group has had a disappointing year, with new releases from Janet Jackson and Smashing Pumpkins not living up to expectations.

The Spice Girls are also expected to contribute much less to profits this year, compared to last.

Mounting takeover speculation

EMI confirmed there was an informal meeting one month ago between senior executives of EMI and Bertelsmann to discuss possible opportunities for co-operation between the two music businesses.

There has been mounting speculation that several major media groups, including Rupert Murdoch's News Corporation and Walt Disney are stalking EMI.

However the group denied that it had not held talks with News Corporation.

Despite the renewed takeover speculation, the market remained unimpressed by EMI's announcement.

EMI's shares soared 17% on Friday on hopes of a merger and talk of News Corporation's interest.

However analysts were disappointed that an imminent merger does not appear to be on the cards and EMI's shares had fallen 15.5p to 376.25p by 1025 GMT, valuing the group at just under £3bn.

Left at the altar

EMI's shares have slumped since Canadian music giant Seagram jilted the group to launch an $11bn takeover of Dutch rival Polygram.

The music industry has also suffered from falling sales this year due to the slowdown in the world economy and the Asian financial crisis.

EMI is expected to announce a sharp fall in profits at its interim results on Tuesday, having been forced to announce a profit warning in September.

If Bertelsmann does merge with EMI it would cap a period of frenetic deal making for the German group.

It has been on an acquisition spree this year, buying a 50% stake in US book publisher Barnes & Noble's Internet business, and last week acquired Springer Verlag, the German publishing group, for $600m.