TELEFONICA TEAM MAY BLITZ WARNER-EMI DEAL

Time Warner execs will discover today whether their bid for record giant EMI will be spoiled by a last-minute rival offer from a mysterious consortium led by Spain’s Telefonica SA.

EMI shareholders are set to meet today to vote on the merger with Time Warner’s music unit, but a $9 billion cash bid being mulled by the consortium could throw a monkey wrench into the works.

Time Warner’s Warner Music has offered roughly $1.3 billion to EMI shareholders to gain board control of a 50-50 joint venture called Warner EMI Music, which would take on the two companies’ $3 billion in debt. The deal would create the world’s largest music company.

Adding to the confusion, Germany’s biggest media company, Bertelsmann, is reportedly considering backing the consortium, even though it can’t formally join since it has previous distribution agreements with Time Warner.

EMI said again yesterday it had not received any rival bids or requests to delay the shareholders’ meeting.

Telefonica, led by hard-charging Chairman Juan Villalonga, is reportedly joining with an unnamed American financial investor and an Asian New Media concern.

The consortium came together after European Union antitrust officials announced an extended probe into whether the Time Warner EMI link-up would be too powerful. That move cast doubt on whether the merger could get approved.

If the consortium is successful, it will be a huge coup for Villalonga.

Internet service provider Terra Networks – which is chaired by Villalonga and controlled by Telefonica – already has a deal on the table to merge with No. 3 portal Lycos, controlled by David Wetherell’s CMGI.

But Villalonga’s incredible acquisition tear – he has increased Telefonica’s market value fivefold in four years – may be jeopardized by an insider trading scandal engulfing him in Spain.

Investigators are looking at whether he secretly bought options in his own company after beginning negotiations for an alliance with WorldCom.

Villalonga has denied the charges, and some analysts see them as politically motivated.