The EMI board will reject a counter-bid from Warner Music at less than 300p a share unless the American music company is willing to risk winning regulatory approval from Brussels.

Warner Music, however, is unhappy about a 12-month approval process that could end in forced sales and lead to it having to pay comfortably more than Terra Firma’s outstanding offer of 265p a share to stand a chance of success.

There are also signs that the rival private equity groups One Equity, Cerberus and Fortress are struggling to see how they can top Terra Firma’s offer, leaving Warner Music as the most viable contender. EMI’s board believes that it cannot incur the risk of accepting a marginally higher offer from Warner that is conditional on regulatory approval, arguing that there is value for investors in receiving cash now, rather than waiting a year.

Yesterday, EMI shares eased 1p to 275¼p as the market waited for Edgar Bronfman, Warner Music’s chief executive, to decide what to do. One banker said: “I think the market’s got this one wrong; it will be difficult for Warner and particularly private equity to go higher than Terra Firma.”

The point is also increasingly accepted by the American group. That means that either it will have to pay £2.4 billion or walk away and try to negotiate directly with Guy Hands’s Terra Firma vehicle, after it completes the EMI buyout, to win control of its recorded music arm.

One Equity and Cerberus are dropping work on their own buyouts, although the position of Fortress was less clear yesterday. Neither was thought likely to team up with Warner Music, which aleady has its own private equity backing.

Terra Firma is widely believed to have paid a high price to win a company struggling with a weak music market. Yesterday, the scale of Terra Firma’s commitment was revealed in its offer document. The British venture capitalist is committing £1.47 billion in equity, representing 46 per cent of the purchase price, including debt. The money is coming from a newly raised fund, which has commitments totalling €5.4 billion (£3.7 billion), implying that Mr Hands is willing to commit nearly 40 per cent of resources of the fund to the single investment. Terra Firma is planning to permit only a modest, but unspecified, pool of outside investment to support its effort.

It is also borrowing £2.5 billion to refinance EMI’s existing debt and take control of the remaining debt, and a further working capital facility of £350 million. The loans will be provided by Citigroup. However, it believes that it will need only about £1.73 billion of borrowings for the buyout.

The interest cost will be 8.1 per cent, although some of that expense will be mitigated if EMI completes, as hoped, a securitisation of its music publishing catalogue. Neverthless, on those figures, Terra Firma’s interest cost will be £140 million – largely swallowing up EMI’s underlying earnings of £174 million last year.

Separately, Apple launched iTunes Plus, its copyright protection-free music store, with EMI’s entire digital catalogue selling at 99p per song. £1.47bn Amount of equity that Terra Firma plans to put into the EMI deal Source: Terra Firma offer document for EMI

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