HMV turns down a revised £842 million bid from Permira

Published on Monday 13 March 2006 11:35

HMV, the music and books chain, today rebuffed an £842 million offer from private equity company Permira, saying it was too low and it would therefore not enter into any negotiations.

The British company, which owns the Waterstone's book business, said it had received a revised conditional proposal from Permira late last week which was pitched at 210 pence a share from a previous 190p a share offer.

HMV has a current market value of around 783.5m.

In a statement, HMV said: "The board unanimously believes that the revised proposal from Permira continues to undervalue the group. As such, HMV group will not be entering into discussions with Permira with regard to the revised conditional proposal."

The group also took the opportunity of the offer rejection to update the City on its ongoing work to shake the group up and on its task of finding a successor to chief executive Alan Giles.

It said it was "making good progress" on the recruitment of Mr Giles' successor and was "now in a position to advance this process".

The firm also said that the proposed acquisition of bookshop rival Ottakar's - which is under the scrutiny of the Competition Commission - would be "value enhancing" to shareholders.

HMV, which has about 200 stores under own name and around the same number under the Waterstone's brand, said it would review its capital structure once the Ottakar's situation has been clarified. Provisional findings from the Commission are expected by the end of March.

Buying Ottakar's, HMV said, would enable it to better compete in the face of a continuing onslaught from the country's big supermarket chains and from the internet, which are increasing the number of books they sell.

That led to a fall in sales over the Christmas period for HMV with the slide exacerbated by heavy discounting in an attempt to lure back shoppers into its stores. That in turn slashed profit margins.

Over the first half of the year to October 29, HMV reported a slump in operating profits to 2.8m, down from 15.7m a year earlier.

It has been looking at ways of updating the business, changing store layout and developing its hmv.co.uk website. HMV said a review of Waterstone's internet strategy was also underway.

Permira is no stranger to retail investments, having backed the takeover of New Look by Tom Singh, who founded the UK's third-largest womenswear chain in 1969. It was also poised to table a 940m bid for WH Smith in the summer of 2004.