EMI Group PLC and Warner Music Group Corp., (WMG) locked in a tug of war after each rejected a takeover bid from the other, are still discussing a merger, EMI said Wednesday.

Warner Music made a cash offer for EMI on Tuesday of 320 pence ($5.84) per share, valuing the company at 2.5 billion pounds ($4.6 billion), EMI said. It rejected the bid, calling it "wholly unacceptable" considering the potential synergies of a combination and the range of options EMI has.

That offer came four days after EMI bid $31 per share to acquire Warner Music, valuing the company at $4.2 billion, EMI said. Warner rejected that offer.

EMI said it also rejected Warner's bid of 315 pence per share made June 14.

New York-based Warner Music did not immediately return a call seeking comment.

A combination of EMI and Warner Music would control about 25 percent of the recorded music market, surpassing BMG in the rankings and moving into second place behind Universal, according to the International Federation of the Phonographic Industry.

It would bring together artists on EMI such as Coldplay, Norah Jones, Paul McCartney and the Rolling Stones with Warner's roster that includes Sean "P. Diddy" Combs and his Bad Boy label, Madonna and Paul Simon.

EMI said that since its May 3 offer to acquire Warner Music for $28.50 per share, "EMI has been continuing actively to explore the potential acquisition of Warner Music, including in discussions with Warner Music and certain of its shareholders."

The company said it believed its $31 per share offer "would be very attractive to both sets of shareholders and would deliver value to EMI's shareholders which is far superior to Warner Music's revised alternative proposal."

Analysts said a combination made sense, but the companies' inability to agree on how a deal would be structured raised questions.

"We have long been of the view that a merger between EMI and Warner would add very significant value," Numis Securities of London said in a research note. It estimated cost savings of 160 million pounds ($290 million).

Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers in Bristol, England, said the benefits of a tie-up — cost savings and increased exposure in the expanding digital market — were clear to both EMI and Warner.

"The underlying benefits of a tie-up are obvious to both of them," Hunter said. "But what they cannot agree on is whether A should take over B, B should take over A, or a merger of equals."

EMI and Warner attempted to merge in 2000 but the combination was vetoed by European authorities. The companies saw a merger as a way to improve competition with Paris-based Universal Music Group and Sony BMG Music Entertainment, the joint venture of Sony Corp (SNE). and Bertelsmann AG.

Hunter said it wasn't clear that a deal would be struck.

"This is becoming one of the longest takeover pursuits in history and the market is not convinced that it is going to happen this time either," he said.

EMI shares closed 8.4 percent higher at 307.50 pence ($5.60) on the London Stock Exchange on Wednesday. Shares in Warner Music Group Corp. were up 4.9 percent to $28.55 on the New York Stock Exchange.

Music publishers are looking for ways to counter a decline in sales of recorded music as downloading songs from the Internet becomes increasingly popular. The IFPI reported that global music sales fell 3 percent to $33 billion last year as consumers bought fewer compact discs and illegal copying eroded revenue.