Universal will not break up the Sanctuary Group, but plans to embrace the music group's diverse business interests, according to sources familiar with its £44.5 million ($87.68 million) bid to take over the troubled company.

The Sanctuary board this morning recommended Universal's 20 pence (40 cents) per share bid for their company.

"Clearly there's a great record catalogue but that's not really the reason why Universal is doing this," a source close to the deal tells Billboard.biz. "There are three business areas that Sanctuary is strong in: merchandising, the agency business and artist management."

Sanctuary Artist Management consists of Trinifold, which represents artists including Robert Plant and the Who, and Twenty First Artists, representing Elton John and James Blunt, amongst others.

The merchandising wing, Bravado International Group Ltd., develops and markets licensed merchandise from the likes of Iron Maiden, Led Zeppelin, Robbie Williams, Oasis and Eminem.

Its live agency, Helter Skelter, has a roster that includes Corinne Bailey Rae, Dido, James Morrison and Kaiser Chiefs.

Universal handles management as well as recording contracts for some of its artists in the far east, but this would be the first time it has entered these aspects of the business in the U.K. Billboard understands Sanctuary will continue to run as a standalone business under current chief executive Frank Presland.

Despite several divestments, Sanctuary also has interests in music publishing and recording studios, as well as controlling label imprints including Trojan, Castle and Attack. It is currently negotiating the sale of its stake in legendary U.K. indie Rough Trade -- Billboard understands this sale will not be affected by the Universal deal. Artists signed to Sanctuary labels include Morrissey, the Charlatans and Alison Moyet.

The famed Sanctuary 360-degree model has come unstuck in a big way recently but the source maintains Universal is confident this was a function of "appalling execution," rather than "wrong strategy." "With the right execution and the right support, this will work well alongside [Universal's] other businesses."

Bridgewell Securities analyst Patrick Yau claims the 360 degree model was previously held back by "scepticism in the City, which refused to back the model."

"I can't really understand what a music major would want with the live music or merchandising business which is normally farmed out to a third party who is much better at it," says Yau. "[Merchandising] is a very high volume, low margin business and demands a certain skillset."

Sanctuary's interim results for the six months to March 31, also published today, show reported revenue of £63.7 million ($125.5 million) -- down from £65.9 million ($129.8 million) for the same period in 2006 -- and a post-tax loss of £6.6 million ($13 million), improved from a £26.7 million ($52.6 million) loss for the same period in 2006. The net debt within the Sanctuary Group at 31 March was £59.8 million ($117.8 million), up from £38.3 million ($75.4 million) at the same point last year. Sanctuary's merchandising unit saw a 19% increase in revenue and a 70% increase in operating profit over the period.

Sanctuary's share price held steady at 20pence in morning trading.