Waterstone’s Sale May Ease HMV Woes

HMV may ease its financial problems by selling Waterstone’s book chain to Alexander Mamut’s Capital Fund Management Limited for about $84 million, but the deal may hinge on whether that’s enough to appease the banks.

Shifting the 296-store book business is an important step toward strengthening the capital structure of the rest of the HMV Group, but its bankers were reportedly hoping to see the sale produce somewhere in the region of $113 million.

An HMV statement said that if the disposal does not complete the directors do not believe they will be able to renegotiate the existing lending facilities “without having first reduced the group’s borrowing requirements through some alternative route.”

It said it was continuing to assess all other options.

HMV admitted in April it was considering a company voluntary arrangement, which could mean the group would need to close even more stores to slash its property costs.

The deal also depends on the approval of HMV’s shareholders, although that looks likely as this year they’ve endured three profit warnings and the stock falling more than 60 percent.

At the beginning of January the shares were worth 32.5 pence but had fallen to around 11 pence by May 20, when the deal with Mamut was announced.

That coincided with another announcement that said like-for-like sales over the 17 weeks to April 30 had fallen by 15.1 percent, which caused the stock to slide further and close at 9.7 pence May 23.

Like-for-like sales at Waterstone’s fell by 8.4 percent over the same period.

The music retailer turned 360-degree music company has seen its debt rise to £170 million, while its original core business and main revenue stream has continued to suffer from online opposition.

Even if the Waterstone’s deal goes through without a hitch and is completed by the end of June, many UK business analysts reckon HMV still faces a multitude of challenges.

Some have said it may still have to go through a company voluntary arrangement to free it from its most burdensome leases before it can reach a new agreement with its banks.

It will also need to raise more money from shareholders but most likely not until after Christmas.

If the deal does go through the new managing director of Waterstone’s will be James Daunt, who has a chain of six bookshops in London.

He’s expected to carry out a review of the business, which employs about 4,500 people.

He told BBC News that running a handful of shops in central London was “clearly very different” from running the UK’s biggest and only remaining national bookseller. But he expressed an ambition to bring some of the qualities of his Daunt Books shops to the Waterstone’s chain.

Mamut, who’s a friend of Russian billionaire Roman Abramovich and reportedly helped fund former Russian Federation President Boris Yeltsin’s election campaigns, has stakes in Moscow bookstore Bookberry, Russian publisher Azbuka-Atticus, mobile phone retailer Euroset and social network site LiveJournal.