Terra Firma, the private equity group run by Guy Hands, looks set to be the new owner of EMI after the music publishing group behind Lily Allen and Coldplay agreed a £2.4 billion takeover.

EMI, the world's third-largest music group by sales, said that it had agreed a 265p-a-share cash bid from Terra Firma hours after the buy-out group made a final, sealed bid ahead of yesterday's 10am open-auction deadline.

News of the deal sent shares in EMI up 9 per cent to a five-year high of 271p, suggesting that investors believe a higher, rival bid could still be made.

While media analysts and bankers do not expect other private equity groups to bid above Terra Firma's offer, they are waiting to see whether Warner Music, the US music group, will mount a counter-bid.

Warner Music, the record company behind Madonna and Red Hot Chili Peppers, and EMI have been trying to merge for the past few years. Merger talks last year were halted following a Brussels investigation into the merger between Sony and BMG, the music arm of Bertelsmann.

Warner this year made a conditional offer of 260p a share for EMI, which was rebuffed.

"The 265p is a good starting point [ for an auction]," said a source familiar with the situation.

However, with the combination of the two companies likely to come under scrutiny by the European Commission, any offer from Warner would need to be over 300p, the source added.

Terra Firma's offer represents a 13.2 per cent premium above EMI's closing price of 234p on February 19th - the day after it received a bid from Warner Music. The private equity group said that it intended to keep the group together and would securitise the cash-flow from the music publishing assets.

EMI also announced that it had made losses for the year of £263.6 million, with revenues down 15.8 per cent to £1.75 billion.

Deutsche Bank, Citigroup and Greenhill advised EMI. Dresdner Kleinwort advised Terra Firma. - (Financial Times Service)