Analysts at Credit Suisse yesterday cut their rating on EMI after the music group agreed on Monday to a £2.4bn offer from private equity company Terra Firma.
The Swiss investment bank announced the move as City investors waited to see if Warner Music Group would trump Terra Firma's bid of 265p a share.
The bank, which revised its rating downward to "neutral" from "outperform", said the offer left little upside to its 280p price target. It also said falling revenues and a weaker music market also contributed to the downgrade.
Terra Firma, run by City tycoon Guy Hands, made the offer shortly after EMI announced it has incurred pre-tax losses of £263.6m compared with a profit of £118.1m last year. Revenue fell 15.8% to £1.75bn.
New York-based Warner is expected to announce soon whether it intends making a counter offer above 265p a share for EMI, home to the Beatles, Lily Allen, KT Tunstall and several other prominent artists.
Warner is believed to be looking at EMI's books. However, London-listed EMI, which has long flirted with Warner, said Terra Firma's offer was the best among a number of proposals it received.
EMI, whose shares closed unchanged at 271p, and Warner have been in on-and-off merger discussions over the past seven years. Talks have been stymied on several occasions by regulatory uncertainty - they abandoned talks last summer after a European Court ruling scuppered another big merger between the music units of Sony and Bertelsmann - and the inability to agree on a price.
In a separate development yesterday, European Union regulators gave Universal Music Group clearance to buy Bertelsmann's BMG Music Publishing for about $2.09bn (£1bn).
The deal would combine the number three and number four music publishing catalogues, giving them a 22% market share and scraping ahead of current market leader EMI.
EU approval was the last hurdle for the deal, which Universal said would close shortly. It is separate from the merger of the Sony-BMG music units more than two years ago that the EU is now re-examining.
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