Britain's EMI Group and Time Warner's music arm are set to merge, creating the world's biggest record company with a powerful foothold on the Internet.

EMI confirmed the plan, saying it opened up the possibility of creating the world's leading music group and enhancing shareholder value.

It added that more detail would be given on the shape of the deal before the London stock market opened today.

The transaction contemplated represented an opportunity to establish the world's premier music group and to create very considerable value for shareholders of both companies, the statement said, adding that the deal would not involve an offer being made for EMI shares. The tie-up between EMI and Warner Music Group would forge a combined group worth some $20 billion (€19.8 billion) and make EMI - a long-standing target of takeover speculation - a majority-owned unit of Time Warner.

Time Warner announced its own merger with Internet giant America Online two weeks ago, with AOL agreeing to buy it in a stock swap worth $163 billion. Leveraging off that new media titan will give the merged EMI-Warner unprecedented access to Internet-based distribution channels for its music.

EMI-Warner will bring to gether some of the biggest names in music.

EMI's line-up includes the Beatles, the Rolling Stones and the Spice Girls, while Warner's stars include Eric Clapton, Cher and Madonna.

Warner EMI Music would have sales of more than £5 billion sterling (€8.2 billion) a year and the pair could bring in cost savings of up to £500 million a year by combining their overheads.

EMI has already said it wants to cut manufacturing costs of CDs and tapes. Combining operations with Warner could allow the pair to close several factories.

The deal will create a business with sales of more than $8 billion a year and bring together a number of well-known record labels, including Virgin, Atlantic, WEA and HMV.