LEADING shareholders in Warner Music Group are said to be opposed to Edgar Bronfman’s plans to make a renewed offer for EMI, the troubled British record company.

According to sources, Bain Capital and Thomas H Lee, the American private-equity firms, are unwilling to back Warner in mounting a higher bid than the £2.4 billion deal on the table from Terra Firma, the investment firm headed by Guy Hands.

Bain and Thomas H Lee are thought to believe Warner will need to offer more than 300p a share to persuade shareholders to switch from Terra Firma. Although Hands is offering only 265p, he does not face the same competition concerns that would inevitably delay, and threaten, a Warner / EMI merger.

Warner has sought a merger with EMI for the past seven years. Many analysts consider the deal inevitable to help it compete with the larger Universal Music and Sony BMG. However, the collapse in CD sales, particularly in America, has undermined Warner’s share price, which has fallen heavily over the past year.

Bain and Thomas H Lee backed Bronfman in 2004 when he bought out Warner Music from Time-Warner. Warner has previously said it enjoys good relations with its private-equity backers, which still have big stakes in the now publicly quoted company.

EMI’s recommendation of the Terra Firma offer, and its earlier rejection of Warner’s approach-es, reflects its view that a deal with Warner involves significant regulatory risk – and hence would require a substantial financial premium.

Warner has suggested that the European Commission might look favourably on a merger, because it recognises the serious-ness of the music industry’s present crisis.

However, it seems Warner’s hopes of a speedy review have been undermined by the current mergers and acquisitions boom. The British record industry is becoming increasingly reliant on music downloaded to mobile phones, according to data to be published by the BPI, the British music trade body, this week.

Consumers in the UK now download an estimated 1.3m tracks per month to their mobile phones, paying an average of £1.40 per track, according to Music Ally, a consultancy. That compares with 53m digital tracks downloaded from internet sites such as iTunes in 2006, the equivalent of 4.4m tracks a month.

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