March 2 (Bloomberg) -- EMI Group Plc, the world's third- largest music company, rejected a 2.1 billion-pound ($4.1 billion) takeover bid from Warner Music Group Corp. as too low.

Warner offered 260 pence a share, London-based EMI said in a statement today. The bid was 17 percent higher than EMI's closing price Feb. 19, the day before it said it received an approach from New York-based Warner Music. EMI today called the proposal ``inadequate.''

The rejection extends the maneuvering between two companies struggling with declining music sales and piracy. EMI and Warner abandoned $4.6 billion offers for each other in July on concern a combination would be blocked by European Union regulators.

``EMI's holding out for a better premium,'' said Bishop Cheen, a bond analyst with Wachovia Securities in Charlotte, North Carolina. ``These two companies, because of their size, do belong together. But it's going to take a long time.''

Shares of EMI gained 10.5 pence, or 4.5 percent, to 246.25 pence in London. They have fallen 7.1 percent this year. Warner shares fell 55 cents, or 2.8 percent, to $19.03 at 4 p.m. in New York Stock Exchange composite trading and have lost 17 percent.

Warner offered 320 pence a share for EMI last June.

The combined company would have a quarter of the global market, moving ahead of Sony BMG Music Entertainment to rank second worldwide behind Vivendi SA's Universal Music Group.

European Regulators

EMI's rejection follows yesterday's decision by European Union regulators to begin a new investigation of the merger that created Sony BMG Music. A European court's rejection of that combination led EMI and Warner to abandon their bids last year.

``I had thought Warner would wait for a definitive ruling from Europe,'' Hal Vogel, an independent analyst based in New York, said in an interview. ``Maybe they felt they should rush this now and take advantage of the management turmoil at EMI.''

EMI, which released albums by Robbie Williams and Norah Jones in the second half of its fiscal year, said Feb. 14 it was experiencing an ``unprecedented level of market decline'' and ``an exceptionally high level of product returns.''

The company ousted its top two music executives, Alain Levy and David Munns, on Jan. 12 after disappointing holiday sales. Eric Nicoli, then chairman, was named chief executive officer. In December, EMI ended talks to be acquired by buyout firm Permira Advisers LLP, after failing to agree on a price.

Shrinking Sales

The North American market for compact discs has contracted 19 percent this year through Feb. 18 from a year ago, according to Nielsen SoundScan, which tracks music sales.

Warner, under Chief Executive Officer Edgar Bronfman Jr., said Feb. 8 that sales of recorded music slid 13 percent in the quarter ended Dec. 31. Demand for new releases fell from a year earlier, when the company had new albums from Madonna, James Blunt and Enya.

The two companies backed away from attempts to combine last year, after a July 13 ruling by the European Court of First Instance in Luxembourg cast doubt on whether a merger would win approval. The court said the European Commission, the EU's Brussels-based antitrust regulator, had only carried out ``an extremely cursory examination'' of the Sony BMG merger. The court ordered a new review and the commission said yesterday it would rule by July 2.

Independent Labels

EMI said today the proposal from Warner ``would entail prolonged regulatory uncertainty and unacceptable operational risk at a critical time for the company.''

Some analysts said the renewed bid by Bronfman, 51, would have a better chance this time because Warner has the support of the Independent Music Publishers and Labels Association or Impala, a trade group whose opposition to Sony BMG led the court to order the review of that deal.

``Getting this pledge from Impala increases the chances the deal will be approved,'' Tuna Amobi, an equity analyst with Standard & Poor's, said on Feb. 20 when Warner disclosed its renewed interest in EMI.

Warner Music said then there was ``a compelling logic in the combination of the two companies.'' Spokesman Will Tanous declined to comment today on the latest bid.

EMI's Nicoli, 56, has tried since 2000 to buy Warner, the world's fourth-largest music company, as a way to reduce costs.

Warner and EMI dropped efforts to merge in 2000 after regulators opposed the plan. EMI's attempt to buy Bertelsmann AG's BMG unit in 2001 was also stymied by regulators. EMI again failed to combine with Warner in 2003, when a group led by Bronfman won the bidding for Time Warner Inc.'s music unit.

EMI has two divisions: EMI Music, the recorded music unit, and EMI Music Publishing, which manages song copyrights. EMI said last month that the publishing unit ``continues to perform in line with expectations.''

The U.K. company reported a first-half loss of 30.6 million pounds in November, saying sales fell 6.1 percent because this year's release schedule is weighted to the second half more than usual. EMI's fiscal year ends March 31.

To contact the reporters on this story: Zimri Smith in London at zsmith@bloomberg.net; Don Jeffrey in New York at djeffrey1@bloomberg.net.

Last Updated: March 2, 2007 16:14 EST