EMI shares surged today as reports indicated one of the world's biggest music companies may be set to merge with US rival Warner Music.

Both companies are reported to be "preparing for preliminary talks" - the mere mention caused EMI shares to go up 6.7 percent to 297 pence.

It will not be the first time both companies have sought a tie-up to combat the bigger rivals Universal and Sony BMG.

"We believe there is compelling logic for the combination. At the time of the 2000 combination EMI and Warner targeted 250 million pounds ($447.5 million) of annual cost synergy benefits. Both groups are now much more tightly run than they were then but we believe that there is very significant scope for removing duplicated costs," the Numis media team said in a research note.

But the brokerage warned, "there is a long way to go before a deal is completed," citing potential roadblocks over deal structure and management roles.