HMV Group Plc, the U.K.’s biggest DVD and music retailer, agreed to sell its Waterstone’s book chain to billionaire Alexander Mamut for 53 million pounds ($86 million) as it seeks to cut rising debt and stave off lenders.
The sale of the 296-store chain to Mamut’s A&NN Capital Fund Management Ltd. is subject to HMV being able to refinance its loans on “satisfactory terms,” the retailer said today. HMV also cut its full-year profit forecast for the fourth time this year and reported an increase in net debt.
The retailer is struggling to reduce borrowings as slumping consumer confidence and competition from supermarkets and online retailers weigh on sales. Waterstone’s, which was acquired from WH Smith Plc in 1998, posted a 6.3 percent drop in revenue to 514 million pounds in the fiscal year through April 2010.
“HMV remain in a lot of trouble and it is not clear that the banks will agree to a refinancing without new equity,” Nick Bubb, an analyst at Arden Partners, wrote in a note to investors. He has a “reduce” recommendation on the shares.
Russian billionaire Mamut owns 6.7 percent of HMV’s shares, which rose as much as 13 percent in London trading. The price obtained for Waterstone’s was about 10 million pounds more than expected, according to Arden’s Bubb.
Waterstone’s will be led by James Daunt, founder of the six-store London chain, Daunt Books, Mamut’s group said in an e-mailed statement. Daunt also previously worked for JPMorgan.
Mamut is worth $2.3 billion, and is the 42nd-richest person in Russia, according to Forbes magazine. He owns silver producer OAO Polymetal, and is majority owner of Euroset Holding NV, Russia’s biggest mobile-phone seller.
Bookstores worldwide have struggled, as Amazon.com Inc.’s Kindle electronic reader wins sales away from hard copies. In the U.S., Barnes & Noble Inc. bookstore chain got a buyout offer yesterday from John Malone’s Liberty Media Corp., valuing the company at about $1 billion. Borders Group Inc. filed for bankruptcy protection in February and is seeking to close about a third of its stores.
HMV is seeking to satisfy bank covenants with a July 2 deadline. Net debt at the company’s April year-end was about 170 million pounds, it said today. The retailer said in March that borrowings would be at least 130 million pounds.
“Discussions with the lenders remain constructive and they remain supportive of the group,” HMV said in a statement.
John Stevenson, an analyst with Peel Hunt, said HMV may need to sell its Canadian outlets and seek a company voluntary arrangement, where landlords are offered compensation in exchange for ending leases.
“Even then, we may still see a need for an equity fundraise,” he wrote in a note to investors. He has a “hold” recommendation on the shares.
The retailer estimated that pretax profit for the year through April 30 was about 28.5 million pounds, down from its January prediction of at least 46 million pounds.
Sales at stores open at least a year declined 12 percent in the 17 weeks ended April 30, excluding revenue from live music venues. HMV stores in U.K. and Ireland were down 15 percent, with Waterstone’s showing an 8.4 percent drop.
The proposed sale of Waterstone’s “provides a good new home for the business,” Chief Executive Officer Simon Fox said in the statement. “We expect this deal to enable the group to achieve a reduction in the group’s borrowing requirements, and, in turn, focus on plans for transforming the HMV Group into a broad-based entertainment business.”
HMV shares rose 1.04 pence, or 10 percent, to 11 pence in London. The shares have fallen 66 percent this year, giving it a market value of 46.6 million pounds.
Mamut’s group is advised by Credit Suisse AG, Taylor Wessing law firm, and Baker Tilly, the company said. HMV is advised by Nomura International Plc.