Takeover Talk Spikes Mama Stock

Mama Group stock soared by 20 percent to 52.5 pence as trading began in London Dec. 10, apparently on the back of analysts’ reports that HMV may step in to help repel a hostile bid.

The UK’s leading independent music business has been stalked by SMS Finance, the investment vehicle of Italian broadband entrepreneur Silvio Scaglia, which has gobbled up nearly 30 percent of the stock since the beginning of the year.

During the course of the week, Scaglia has made two hostile bids for the rest of the company – first 37 pence per share and then 45 pence. The latter valued Mama at £38.37 million.

Mama knocked them both back, claiming they were “opportunistic” and undervalued the company.

The theory that the country’s largest High Street music, books and games retailer may be stepping in is based on the fact it already has a substantial joint venture with Mama.

In January it paid more than £18.25 million for a half-share in the 11 UK music venues owned by Mama Group. Some of the leading business papers believe HMV could launch a “white knight” bid for Mama to protect its position.

The Times claims the joint venture that started in January came about only after HMV tried to buy the entire company. It’s declining to comment on whether it’s about to make another bid.

HMV, which also operates the Waterstone’s chain of bookstores, estimates that the live music market in Britain is worth about $1.5 billion, plus the potentials for tie-ins via ticket sales, CD sales and other merchandising.

“The physical music market is changing structurally and we need to diversify,” HMV chief exec Simon Fox said at the time of the Mama deal. The music retail sector has since witnessed the collapse of retailers Woolworths, Zavvi and Borders.

The outcome may hang on whether Mama co-founders Adam Driscoll and Dean James have built the business for the long term, and can persuade the other shareholders that’s the best strategy. The outcome also depends on whether they would hive it off for the right price.

Pubs ’n’ Bars, the AIM-listed pub group, became the latest victim of the recession yesterday when it was forced to call in administrators from Grant Thornton.