She said: "We estimate that an EMI-Warner combination would potentially yield savings of £100m."But the companies' announcements highlight the difficulties in putting together such a deal, particularly with respect to valuation and management. Moreover, if Warner is holding our for a higher price, this raises the risk that EMI could overpay."EMI shares closed down 4 per cent at 270.5p, while Warner Music's moved up in early trading, but remained below the level of EMI's offer. Smoke signals from both camps suggested that haggling over price is set to resume, with results due from Warner tomorrow likely to be particularly important. EMI is said to have scope to increase the cash element of its bid.Analysts have also begun to assess the possible cost savings EMI could wring from any deal, which might allow it to raise its offer.

It would also open up the opportunity for another round of cost savings in an industry ravaged by internet piracy and the decline of CD sales.And it would give Edgar Bronfman, the Seagram whisky heir who led the private equity buy-in of the company in 2004, a lucrative and reputation-enhancing exit to pursue new ventures.EMI saidthat "the board continues to believe that an acquisition of Warner Music by EMI would be very attractive to both sets of shareholders", although it cautioned that it would not do a deal that diluted earnings. A duet between the industry's number three and four players has been long-anticipated, but the offer of $28.50 per Warner share, delivered on Monday by Eric Nicoli, EMI's chairman, proved a disappointment after several weeks of rumours that talks were back on. Their first attempt at a merger in 2000 was vetoed by European competition authorities. The pair talked again in 2003 but Warner Music was eventually sold by its owner Time Warner to a private equity consortium.A deal would bring together Coldplay and Kylie Minogue from the EMI side, with the Red Hot Chili Peppers and Madonna. EMI is preparing a renewed bid for Warner Music after its US-based rival rejected a $4.23bn (£2.35bn) cash-and-shares offer.

Warner said yesterday that EMI's bid - its third attempt in six years to woo the US music group - was not in the best interests of its shareholders, but sources close to EMI described it as "a first offer" that they had expected to be dismissed. Any bid in teh next 12 months would have to match or be higher than the level it has bought shares at in the market.Renewed bid hopes spurred LSE shares 26.5p to 1,244p, valuing the exchange at£3.1bn.. The LSE's most attractive asset is its trading system, Sets, which outpaces rivals' set-ups.Under Takeover Panel rules, Nasdaq cannot make a new offer for the LSE for at least six months after the previous one unless it gains the board's backing or a rival bid is tabled. Advisers to the New York Stock Exchange and the LSE are continuing to talk about a potential tie-up.Although Nasdaq dropped its takeover attempt of the London exchange in March after a 950p-a-share offer was rejected, it subsequently bought a 15 per cent stake for almost £448m.Yesterday, Nasdaq revealed it has lifted that stake to 18.7 per cent, paying £119m to buy 9.8 million LSE shares from Wellington at 1,218p apiece. The acquisition entrenches Nasdaq's position as the LSE's biggest shareholder, makes any rival bid more difficult and revived speculation that it may yet make another move on its London rival. The LSE has rebuffed approaches from four potential suitors - Deutsche B?, Euronext, the acquisitive Australian investment bank Macquarie and America's Nasdaq exchange - over the past 18 months.