'For sale' sign on Waterstone's as owner HMV seeks to balance books

Shares in the group closed up 4.5 per cent after it was forced to issue a brief stock market update in response to recent press speculation over the sale of its bookshops.

The company, which has already issued two profit warnings this year, confirmed it was "exploring strategic options" for Waterstone's and HMV Canada, but added that no discussions were taking place with respect to an offer for the whole group.

HMV said: "The group's lending banks continue to be supportive, our banking facilities remain fully available and the group is continuing to maintain a regular and constructive dialogue with its lenders."

Earlier this month, the group warned it expected to breach its banking convenants by its year-end next month with about 130 million of debt.

The retailer - which is closing 60 stores over the next 12 months and shedding jobs - aims to cut costs by a further 10m a year.

Sales plunged 13.6 per cent in the UK and Ireland over Christmas and have since been hit by supplier troubles as firms struggle to gain credit insurance amid fears over HMV's trading.

The group is understood to need to raise about 75m to relax its banking convenants.

City analysts estimate that Waterstone's - which has some 4,500 staff spread across more than 300 branches in the UK, including 26 in Scotland - could be worth 70m.

Reports have linked founder Tim Waterstone to a bid for the chain, which he launched in 1989 after leaving WH Smith. Waterstone sold out to fellow shareholder WH Smith in 1993, with the firm then being sold to HMV in 1998 for 300m.

Billionaire Russian businessman Alexander Mamut - who had previously worked with Waterstone on his bookshop chain - has also been linked with a bid, with the imminent initial public offering of Euroset, his mobile phone retail business, set to bolster his war chest.

Other potential bidders reportedly hovering around the group include retail restructuring specialist Hilco - which has owned Allied Carpets, Habitat and MK One. Hilco is thought to be interested in HMV Canada.

But Nick Bubb, a retail analyst at Arden Partners, warned that investors should not expect any sale of the Canadian arm to raise much money. Bubb said: "Hilco will pay nothing for HMV Canada, which is moving into loss. There is no alternative to having a big rights issue, so caveat emptor - 'Let the buyer beware'."

HMV has faced increasing competition from online retailers and supermarkets in its core CD and DVD markets. It is one of the few music and video retailers still standing on the high street.In the Budget, Chancellor George Osborne promised: to even out the tax playing field for companies such as HMV. He said: "We're going to tackle the exploitation of low value consignment relief that has left our high street music stores fighting a losing battle with warehouses in the Channel Islands."

HMV has been broadening its product mix as part of a fightback, and last year moved into live music with its purchase of Mama Group. .