EMI blows cold on BMG merger.

EMI and German media group Bertelsmann are this week expected to pull the plug on their proposed merger deal after five months of negotiations have hit a brick wall with EC regulators in Brussels.

The UK music group, already wounded after its failed merger attempt with Time Warner -- which cost it 43m [pounds sterling] -- could make its final decision as early as Tuesday. No one from EMI would comment, but senior industry sources suggest EMI Group chairman Eric Nicoli and Bertelsmann chairman/CEO Thomas Middelhoff are likely to call a halt to further talks unless the anti-trust landscape softens.

One senior source says EMI and Bertelsmann have agreed a merger deal in principle, which would entail disposals of some assets outside the UK. But he adds, "Finding a construction the regulators accept is a different matter. That has been the problem."

If EC regulators -- influenced by the changes likely to be brought to the market by online deals, the AOL/Time Warner and Vivendi/ Universal mergers and political changes within the US Federal Trade Commission -- lower their expectations about collective dominance, then renewed talks between EMI and Bertelsmann could conceivably take place. But, it seems for now, time has run out for EMI and BMG.

The months it has taken to edge closer to a deal or to receive informal answers from Brussels about their proposals and escalating costs associated with a formal notification are thought to have persuaded EMI and Bertelsmann's management teams that they cannot allow the negotiations to drag on. "It's very difficult to get a steer [from Brussels] because the EC regulators tend to either give negative signals or no signals ...