WARNER and EMI shares tumbled yesterday after the European Court of the First Instance ruled that the European Commission was wrong to give regulatory approval to the two-year-old Sony BMG music joint venture.

The unprecedented decision, after a legal challenge launched by Impala, the trade body for independent labels, means that Sony BMG will probably have to reapply for regulatory approval — and could find itself forced to break up. Investors concluded that a Warner-EMI deal would be harder, too. Warner’s shares tumbled 15.8 per cent to $25.05 in the early afternoon in New York, while EMI gave up 9.2 per cent to close at 277¾p.

However, both companies left the possibility of fresh bids, with Eric Nicoli, EMI’s chairman, saying that there was “no reason, at this stage” to believe that the European court decision automatically meant that a tie-up with Warner would be blocked.

The Court of the First Instance held that the Commission did not conduct a thorough enough analysis of whether the Sony BMG combination would harm competition in recorded music, by reducing the number of majors from five to four.

Patrick Zelnick, Impala’s president, said: “My confidence in justice is going up”. The trade body said that it would continue to oppose both the Sony BMG deal, and any Warner-EMI tie-up, arguing that majors are so powerful that they can dominate marketing, and retail space.

In a statement Sony BMG said that the judgment did not “affect the validity of the Sony BMG joint venture”, although the Commission will have to approve it again or appeal against the court’s ruling.

Warner’s and EMI’s share price falls set new benchmarks for each company’s “air value”, given that each company is trading without any takeover premium. Given that the synergies for any Warner-EMI combination amount to £200 million a year, valuing them at £1.5 billion and splitting them 50/50 between buyer and seller would imply a takeover price of 363p for EMI and $34.36 for Warner Music.

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