Terra Firma, the British private equity firm founded by Guy Hands, has seen off rivals, including Warner Music, to gain a recommendation from EMI, for an offer that values the ailing music group at £2.4 billion, or £3.2 billion including debt.

The transaction also knocks out US investment firms Cerberus, One Equity Partners and Fortress which had been given access to EMI's books and were putting the finishing touches to their bids.

It is understood that Terra Firma had entered the frame about ten days ago and was given access to the group's books. It approached EMI this morning with a firm offer of 265p a share.

The agreed deal with Terra Firma will not prevent the rivals from coming forward with higher bids but it is believed that Terra Firma's offer is fully funded and ready to be launched to shareholders.

Warner, Madonna's record label, is believed to have renewed its offer of 260p a share for EMI, home to Joss Stone, while Cerberus, Fortress and One Equity are understood to have come in with bids around the 255p a share mark.

Mr Hands said today: "Terra Firma's objective is to build on EMI's current position as one of the world's leading music companies and accelerate the development of its digital and online strategy to fully exploit this long-term growth opportunity.'

John Gildersleeve, Chairman of EMI, said: 'The global music industry is undergoing significant change and... significant uncertainty exists as to the timing and extent of future market developments.

"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."

But the move is likely to draw criticism from independent music companies, who had favoured a Warner takeover because of concessions designed to protect smaller competitors that it had agreed with Impala, the industry body.

EMI is understood to have set a deadline of May 23 for the submission of bids - the same day as its annual results announcement.

EMI shares closed up 23p at 271p

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