Warner Music will have until Thursday to declare whether it intends to make a bid for rival EMI, as faltering debt markets make it harder to borrow the cash needed to pull off the £3.2 billion deal.

On Monday, it is expected that the Takeover Panel will tell Warner that it must “put up or shut up” by July 19. Any bid by the US music company is expected to bid at about 300p a share. If it fails to bid EMI will fall into the hands of Terra Firma, Guy Hands’s UK private equity firm.

Warner Music, the company behind Linkin Park and Madonna, has been agonising for weeks over whether to counter the 265p a share offer made by Terra Firma in May.

In addition to the weakness of the global recorded music market, which could be down by 11 per cent this year, the tightening of UK credit markets has added to the pressure on Edgar Bronfman, Warner’s chief executive. He has long wanted to purchase EMI, which is home to The Beatles and the Spice Girls.

No decision has yet been taken by Warner, which is likely to wait until the last possible moment. Any bid is expected to be conditional on regulatory approval, and is unlikely to go through for 12 months because it is expected to require a full examination by the European Commission.

July 19 will be the 50th day after Terra Firma made its offer and would, under normal circumstances, have been the last day for Warner Music to put in an offer without restarting the takeover clock.

The US company could have submitted a later bid, but at the cost of opening a new 60-day offer period and leaving EMI dangling. It will now be unable to make a later bid following the Takeover Panel’s notice.

If Warner does walk away, Terra Firma will have ten days in which to win over EMI investors. The private equity firm has won acceptances from only 3.82 per cent of EMI’s shareholders, but that is because the British company’s share price has hovered just above Terra Firma’s offer as the market hopes for a counter-bid.

EMI ended the week at 269.5p, but will almost certainly dip under 265p if Warner does rule itself out.

Terra Firma yesterday extended the deadline for its offer from July 12 to July 19. It is the second time that Terra Firma’s takeover vehicle, Maltby Ltd, has extended its offer.

Warner Music’s stock has suffered because it remains a possible acquirer. The New York-listed company has seen its shares fall from $17.40 to $14.02. Earlier this week, the influential Pali Research analyst Rich Greenfield said that a Warner bid would be “quite dilutive” and that the combined company would be “highly leveraged” at seven times underlying earnings.

Terra Firma’s offer document indicated that it would commit £1.47 billion in equity, representing 46 per cent of the purchase price, including debt. The money would come 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.

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