Doubts over EMI-Bertelsmann deal

EMI is said to be frustrated with the regulatory process

The proposed merger between EMI and Bertelsmann that was set to create the world's third largest music group is reported to have run into the sand.

Eric Nicoli, EMI chairman, is close to ending the talks because of the delay in gaining regulatory approval, the Daily Telegraph newspaper quoted unnamed industry sources as saying.

The newspaper quoted one person close to the talks as saying: "EMI and Bertelsmann have got on fine. The trouble is that it is hard to find a way of doing the deal in such a way that doesn't remove all value from it."

The report came one day after Thomas Middelhoff, Bertelsmann chief executive, said both sides remained as committed as ever to the deal.

Frustrated

"In reality, it's been a done deal since October. What we need to do now is find a workable situation anti-trust-wise," he told Reuters in an interview.

"Both sides desperately want to realise this merger."

The Daily Telegraph said EMI investors had become frustrated with the regulatory process and were coming to regard it as an unwanted distraction.

Analysts say Bertelsmann had, for long, eyed a major position among music labels but had few possible acquisition targets.

EMI and Warner Music previously scrapped their plans for a £14bn merger after regulators looked set to demand a host of heavy concessions as the price for approving it.

Bertelsmann reportedly sounded out European Commission anti-trust officials about the implications of any deal with EMI before proceeding.

Final effort

There are not thought to have been any formal talks with either the commission or the Federal Trade Commission in the US.

Using consultants, lawyers and other intermediaries, Bertelsmann is believed to have argued that the issues that sunk the proposed EMI-Warner tie-up no longer apply given big changes in the media industry in the past year.

Among these have been the creation of the giant groups AOL Time Warner and Vivendi Universal.

The Daily Telegraph said EMI and Bertelsmann would make a final effort to satisfy regulators but the most likely outcome remained an announcement within two weeks that the deal was off.