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EMI remains the subject of speculation that corporate activity could soon be in the offing. Among the favourite rumours is of a tie-up between EMI and either Bertelsmann's BMG or Time Warner Music in the US.

However, talk has also been circulating in the press that an MBO could be in the offing, backed by a private equity house such as Cinven, Blackstone or Thomas H Lee.

While the certainty of either route remains to be seen, the BMG or Time Warner Music plan may well still be problematic, despite some claims that the regulatory environment might be more favourable.

A tie-up between EMI and any other major player in the sector would face severe EU competition concerns, lawyers and industry observers said. To a number of M&A lawyers familiar with EU competition law, such a deal could face the same fate as the failed merger between EMI and Time Warner Music.

"There is objective evidence that any tie-up between the majors would face similar difficulties," a lawyer said.

EMI and Time Warner Music withdrew their notification to the European authorities in October 2000 after failing to tackle the European Commission's competition worries. The EU's competition regulator said it feared the merger would have led "to an oligopoly of four firms controlling some 80% of the market concerned in the European Economic Area."

Copyrights, music publishing and online music delivery issues were also of concern.

According to a lawyer familiar with the music sector, the commission is likely to raise the same concerns if any two of the industry's five major players were to merge. "One would have to commit to particularly creative and serious undertakings to obtain a conditional green light from the commission," he said.

Sources close to the industry nevertheless argue that the sector is not currently as profitable as it was when the EMI/Time Warner Music deal failed. That might change the way the commission would look at a deal. A legal source said: "The fact an industry is at a peak or in crisis is not relevant at all in terms of competition."

Online music piracy, however, is understood to be seen  as an argument which lawyers could use to make the commission look at a merger in a different light. Lawyers could argue that the volume of piracy should be added to the music industry market scope to widen the market definition. If the argument were accepted, it would technically reduce the market shares held by the major labels and, at the same time, the level of EU competition concerns, a source said.

In any event, it is believed piracy would be at the centre of a legal battle for clearance. Most observers said they would expect a deal to go through an in-depth second phase.