Global giants Warner and Universal could be set to battle for control of Sanctuary, the troubled music group which manages Elton John and James Blunt.

Sanctuary shares leapt more than 40% today, adding 5.5p to 16.75p by 4.00pm, as it was forced to admit to the market that it has received approaches from mystery bidders. The company gave no names. Industry insiders believe there are only two potential bidders: US giant Warner Music Group and Vivendi-owned Universal Music.

The logic for a larger rival to buy Sanctuary would be to net its music merchandising arm and its attractive artist management contracts. Universal already counts Elton John among its artists and acquiring Sanctuary would also give it the artist management contract for the global pop star. The same is true for Warner with James Blunt.

Sanctuary's management may well be grateful to a big label happy to provide it with a new home. The last year has been a troubled one for the group, which also includes a recorded music business with Morrissey back catalogue.

The company sacked its co-founder Andy Taylor in the first half of last year and the other founder, Rod Smallwood, left in November taking the label's prime act, Iron Maiden, with him. Sanctuary, which takes its name from an Iron Maiden song, still has the merchandising contract for the heavy metal group and released its latest album.

Early on last year the company raised £110m in a rescue rights issue to pay off debt. It then brought in Bob Ayling, the former British Airways chief executive, as chairman to improve corporate governance and push through a major overhaul. In July, its Aim-quoted rival Mama unsuccessfully bid to take it over. But the restructuring has yet to pay off. Sanctuary said in April that it would not achieve profitability until at least 2008 and that its recorded product division would miss expectations for this financial year. The music label arm with its high running costs has consistently been a drag on the overall business and it could be run more efficiently as part of a bigger group.

The market reaction suggests the City sees a bid coming in at well above yesterday's closing price of 11.25p, but it is doubtful given Sanctuary's troubles that either predator could offer the 50p a share seen in last year's rights issue. Universal declined to comment. Warner could not immediately be reached for comment.

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