EMI last night edged closer to winning the auction for Chrysalis, one of Britain’s last big independent music groups, as it emerged that rival Warner Music had been sidelined.

While a handful of others are understood to be involved in the auction, which is expected to see Chrysalis, including the independent Bug Music label, valued at about £170 million, sources said that Terra Firma-owned EMI was a strong contender.

The auction for Chrysalis, which owns the music publishing rights to artists such as Blondie, David Gray and much of David Bowie’s early work, followed a decision by the company’s founder Chris Wright to carry out a review of the business.

Mr Wright said in November that he was sitting on a “jewel of a business”, but suggested at the time that he was sceptical about the prospects of receiving an attractive offer in the present climate.

Mr Wright, Chrysalis’s largest shareholder, is likely to want to sell the business before new capital gains tax rules come into force on April 6, although he is understood to be willing to hold off on a deal if a suitable price is not reached.

Guy Hands, whose private equity group, Terra Firma, bought EMI for £2.1 billion last year, said in a memo to investors last year that he saw “potential for consolidation” in the industry.

In addition to its music business, Chrysalis also has a CD distribution arm called Lasgo. Chrysalis sold its radio business to Global Radio for £170 million in July.

EMI’s bid for Chrysalis, first revealed by The Times, surprised the industry, as it came at a time of a restructuring and cost cuts.

Mr Hands announced earlier this year that he was removing nearly a third of the firm’s 6,000-strong workforce as part of a cost-cutting drive aimed at saving £200 million a year and creating a “new, revolutionary structure”. Nick Firth, the former chairman and chief executive of BMG music publishing, backed by a private equity fund, is also understood to have been involved.

Warner Music was bidding for Chrysalis through its music publishing arm, Warner Chappell. If EMI manages to bag Chrysalis, it is unclear if a deal would be financed through Terra Firma or EMI.

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