Sony and Bertelsmann (BMG) have announced plans to merge their music operations in a move that would potentially rival Universal Music's 26 per cent share of the global recording industry.

Speaking at a news conference in Germany the companies said the merged company would be called Sony BMG. The deal is said to be based on a 50-50 valuation of the two assets, and there will be no cash payment.

BMG chairman Rolf Schmidt-Holtz is to be chairman of the company, and Sony Music chairman Andrew Lack is to be chief executive.

Gunter Thielen, BMG's chief executive, said: "Bertelsmann and Sony have signed a non-binding letter of intent, but I expect a final agreement to be made within several weeks."

Thielen told Reuters: "We are optimistic that regulatory bodies will approve our plans. It is only a merger of the artistic part of the business. The CD and production business is not part of this, thus this merger we're proposing is smaller than the one that was proposed in the past."

The BBC suggests that the deal "reflects the increasing competition in the music business, which is suffering from slowing global demand and the effects of unofficial online music sales".