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Omar Sheikh, analyst at Charles Stanley, said a lot of the speculation is based on the fact that the market has got worse since the European Commission last got in the way of EMI's merger plans. Sheikh cast doubt on whether this was ultimately enough of a reason for the authorities to change their mind that having one fewer players would be detrimental. The situation could reach a stand-off where the authorities continue to block a deal that might be needed to create value. The authorities could argue that attention should be paid to the company's existing business model and the addressing of piracy issues.

Meanwhile, Jonathan Barrett at Teather & Greenwood said that a straight merger would not present much commercial logic, as a lot of the business would have to be carved up in order to satisfy the regulatory bodies. There is, however, an opportunity for a break-up, possibly splitting the Recorded Music division into two parts, along geographical lines, and carving the Music Publishing arm into packages of rights. There may be some industry interest in the Recorded Music side, while both trade and financial players could look at the Music Publishing side. This could involve backing management, he said. However, there would need to be a reduction in the company's debt pile and the company's credit rating of BBB is clearly an issue and demonstrates a lack of confidence. EMI reported net debt at September 30, 2002, of £1.085bn.

One report said that a deal in the first half of this year is a possibility and asserted that competition issues could pose fewer problems than they did before. However, it also pointed out that AOL Time Warner, for one, has said it is focusing on reducing debt rather than large deals. AOL Time Warner has just reported a $98.7bn loss for 2002.

An EMI spokesperson declined to comment on market speculation, but pointed to a presentation by group chairman Eric Nicoli in December, when he said: "Everyone knows that there's enormous value to be created by combining two major companies in the same line of business.

"And everyone also knows that the regulators have taken a dim view of such a combination in the music industry in recent years. Much has changed since anyone tried it, but what hasn't changed is that the rewards are high and the regulatory and execution risks are considerable."