Both Universal Music and Sony Music were considering a possible five-year deal in which they would assume the rights in Canada, the US and Latin America to sell content by EMI artists, ranging from The Beatles to Coldplay, to physical and digital retailers, such as Wal-Mart and Apple's iTunes.
EMI, Sony and Universal declined to comment, and it was not clear how serious the potential bidders were. People familiar with the negotiations said terms were fluid and several uncertainties remained, including whether the proposal pitched this weekend by Charles Allen, EMI's executive chairman, might fall foul of its bank.
EMI is racing to sign a deal by Wednesday, after which it must submit its figures for a quarterly test on terms in the loans Terra Firma, Guy Hands' private equity firm, took out from Citigroup when it bought the UK music group for £4.2bn in 2007.
Maltby Capital, EMI's holding company, said that it expected to fail the covenant test and had been trying to raise £120m from Terra Firma investors as an "equity cure" to make up the shortfall before a mid-June deadline.
Citigroup could try to block the deal if it considered it damaging to the assets on which its loans are secured but might struggle to object if the deal created value by putting EMI's sales through the more efficient distribution operation of a larger rival, which can negotiate better terms with retailers.
People familiar with EMI's negotiations said it was pushing Universal and Sony to pay as much as possible of the £200m sum up front to reduce its debt before the quarterly test, which measures the multiple of debt to earnings before interest, tax, depreciation and amortisation.
The deal under discussion has already changed from an earlier EMI attempt to secure £400m for the US rights, and could run into opposition from the regulators concerned at the prospect of one of the industry's two largest labels increasing their market power.
A distribution agreement could also harm Warner Music, EMI's closest rival in size, by boosting either Universal or Sony and making its own hopes of a merger with EMI Music more remote.
The proposal has stirred concern among some artist managers and lawyers. Jazz Summers, manager of Richard Ashcroft of The Verve and chairman of the Music Managers Forum, told the FT: "This is not music business, this is bank business."
Mr Summers said he admired EMI's US management and feared that another label would favour its own acts over those on EMI's roster, and that mortgaging the American business would affect EMI's ability to break British acts in the US.
"When you've got your own company in America I think there's more of a feeling that 'we want to break this'," he said.
Copyright The Financial Times Limited 2010.